WASHINGTON -- Making a case for his confirmation to a second term as chairman of the Federal Reserve, Ben Bernanke on Thursday defended unpopular actions he has taken that helped stem a spreading global financial crisis, and offered a mea culpa for the Fed's failure to see the storm coming.
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. He is widely expected to win confirmation
In an opening statement, Bernanke said the financial crisis would have 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 the Fed was slow to recognize the threat that problems in mortgage finance presented to the broader financial system. Bernanke said the Fed had failed to sufficiently monitor 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 of 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 is the Republican Party that is most hostile toward President Obama's nominee for a second term.
The harshest criticism came from Sen. Jim Bunning, R-Ky., 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. "I will do everything I can to stop your nomination and drag out this process as long as I can."
Sen. Bernard Sanders, a Vermont independent, issued a statement Wednesday night saying that he had put a "hold" on Bernanke's confirmation, a procedural move that allows a lone senator to delay Senate action. His stand could require a super-majority of 60 votes in the 100-member Senate to achieve Bernanke's confirmation.
"The American people want a new direction on Wall Street and at the Fed. They do not want as chairman someone who has been part of the problem and who has been responsible for many of the enormous difficulties that we are now experiencing," Sanders said. "It's time for a change at the Fed."
Other critics, such as Sen. Richard Shelby of Alabama, the panel's senior Republican, point to transcripts of the closed-door Federal Open Market Committee meetings, where interest rate policies are determined. Recently declassified transcripts show that Bernanke, as a Fed governor, was a principal voice for keeping interest rates unusually low in the years after the Sept. 11, 2001, terrorist attacks.
Those low interest rates, economists now conclude, contributed to an era of cheap money that helped fuel an unsustainable rise in home prices and a period in which consumers, businesses and financial firms overextended themselves with massive debt.
Under hostile questioning by Bunning, Bernanke maintained that regulatory problems in the mortgage markets were to blame for the housing bubble, not the Fed's monetary policy.
Democrats largely rallied behind Bernanke, 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."
