WASHINGTON — Jim Bunning, the conservative junior Kentucky senator who will retire next year, landed a parting punch Thursday against Federal Reserve Chairman Ben Bernanke.
Bunning, who has railed against Bernanke's performance during the nation's financial crisis, became the second Senator to put a "hold" on Bernanke’s confirmation for a second term. The procedural move by Bunning and Sen. Bernard Sanders, a Vermont independent, could require a super-majority of 60 votes in the 100-member Senate to achieve Bernanke's confirmation.
"I will do everything I can to stop your nomination and drag out the process as long as possible," Bunning said during Bernanke's confirmation hearing on Thursday. "We must put an end to your and the Fed’s failures, and there is no better time than now."
Bernanke faced tough questions from members of the Senate Banking Committee, which must decide whether he gets another four-year term as the chairman of the independent central bank. Bernanke defended unpopular actions he’s taken that helped stem a spreading global financial crisis, and he offered a mea culpa for the Fed’s failure to see the storm coming.
The harshest criticism came from Bunning, who voted against Bernanke for his first term on the grounds that his policies were indistinguishable from those of his predecessor, Alan Greenspan.
"Your time as Fed chairman has been a failure," Bunning said.
Bunning, who has long railed against how the Federal Reserve operates, went on to further criticize the Fed chairman's tenure.
"You have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out," Bunning said. "In short, you are the definition of moral hazard."
In an opening statement, Bernanke said that the financial crisis would've been "markedly worse" but for the actions of the Fed and the $700 billion taxpayer bailout of the financial sector that Congress passed last fall.
Under questioning later, he acknowledged that the Fed was slow to recognize the threat that problems in mortgage finance presented to the broader financial system.
Bernanke said that the Fed had failed to monitor sufficiently the risks that large financial firms were taking, a failure that had grave consequences for average Americans, who now are struggling with an unemployment rate that’s at 10.2 percent and probably heading higher.
A Republican, Bernanke was first nominated by President George W. Bush in October 2005 and confirmed in January 2006. Today it's the Republican Party that’s most hostile to President Barack Obama's nominee for a second term.
Democrats largely rallied behind Bernanke, a quiet bearded man whose career before the Fed was as a Princeton University professor widely recognized as the world’s leading expert on the Great Depression.
"Under your leadership, Mr. Chairman, the Federal Reserve has taken extraordinary actions. . . These efforts, in my view, have played a very significant role in arresting the financial crisis," said committee Chairman Christopher Dodd, D-Conn. "I believe that you deserve another term as chairman of the Federal Reserve. . . . I believe you are the right leader at this moment in our nation’s economic history."
Democrats and Republicans alike were highly critical of the Fed's decision during the September 2008 rescue of insurer American International Group to pay off creditors at full value without negotiation.
McClatchy first reported this last April, but it got attention from Congress only last month, when a special inspector general's report on the use of taxpayer bailout money highlighted it.
Bernanke said Thursday that since AIG wasn't in bankruptcy, the Fed didn't have the power to demand so-called haircuts, in which creditors are paid off at less than face value.