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Obama Takes Extra Time To Ponder Bernanke's Fate At The Fed

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President Barack Obama is unlikely to tip his hand as soon as financial markets would like on whether he plans to name Federal Reserve Chairman Ben Bernanke to another term.

Many investors have signaled they would prefer Bernanke to get a new four-year term after his first one expires on Jan. 31, 2010 and they would like Obama to lay to rest any uncertainty about the renomination without delay.

But the president is likely to take his time as he weighs whether Bernanke's role in the run-up to the credit crisis will be a political liability going forward and if there is firm evidence the economic recovery is on track.

"If you get beyond August without an announcement, the markets will begin to get nervous," said Camden Fine, the president of the Independent Community Bankers of America.

Taking history as a guide, a public announcement could be be delayed until late October. That is when former President George W. Bush announced his replacement for Alan Greenspan in 2005.

Obama is considering putting his own stamp on a Fed that has seen its reputation dented in the wake of the financial meltdown of the past two years.

Market Support

Financial markets have given Bernanke high marks on the job and rate his chances for reappointment at about 80 percent.

Investors care about who runs the Fed because a new figure, likely a Democrat, might focus on lowering unemployment while tolerating higher-than-desirable inflation. Such an assumption might lead markets to recalibrate their bets about longer-term securities, sending longer-term interest rates higher.

In addition, while Bernanke has mapped out his exit strategy to pull the economy back from exceptionally low interest rates and extricate the Fed from a flood of loans to financial markets without sparking unwanted inflation, other candidates might chart a different course.

For the president, however, the calculus may be complicated by the economy's slow path to recovery and a public backlash against financial bailouts for big business at a time when ordinary Americans are suffering rising joblessness and lost personal wealth.

Critics also say Bernanke was part of a Fed that failed to spot a ballooning housing bubble and stood idly by as risky lending proliferated, leading to the credit crisis.

Obama has publicly praised Bernanke's handling of the crisis, but stopped short of saying he wanted him to stay on.

The president's advisors will evaluate the merits of extending Bernanke's term in the light of their own political fortunes, which will be tested in a mid-term election in November 2010 that could be a referendum on Obama's first two years.

Many lawmakers have been scathing in their criticism of the Federal Reserve.

Obama and his advisors will have to decide how much of the attacks are politically opportunistic and how much of the anger reflects broader misgivings about Bernanke and the Fed amid rising joblessness and tumbling home values.

The Senate must confirm the president's choice for Fed chairman, and while Obama's Democrats control the legislature, significant opposition to Bernanke could derail his renomination.

Economy's Path

Clear evidence the economy is on track for recovery would bolster Bernanke's candidacy and would justify Obama's own decision to fight the crisis with aggressive public spending.

"If the economy fell off the cliff, there would of course be a different view," said Eugene Ludwig, chief executive of Promontory Financial Group.

Bernanke has taken the unprecedented step of arguing his case to the broader public in prime-time television interviews and "town-hall" meetings.

He has defended the Fed's bailouts of banks as a necessary evil while citing his humble upbringing as proof he is in touch with the aspirations and economic challenges of ordinary Americans.

Partisan considerations may affect how the president views Bernanke, who was Bush's choice to replace Greenspan. Obama could be the first Democratic president to pick a new Fed chairman since Jimmy Carter tapped Paul Volcker in 1979.

With strong candidates in the wings -- White House aide and former Treasury Secretary Lawrence Summers, San Francisco Fed President Janet Yellen, and former Fed vice-chairmen Roger Ferguson and Alan Blinder -- Obama may be tempted to claim one of the most important jobs in Washington for his own party.

The president could aim to make history by naming Yellen as the first woman, or Ferguson, as the first African American, to run the central bank.

"It's also a question of who does Barack Obama want on his team," said Charles Liegeman, chief investment officer for Advisors Capital Management. "Bernanke was someone he inherited, not someone he chose."

http://www.cnbc.com/id/32319963

Edited by MOP

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So the Prez gets to appoint the Fed chairman, but the Fed chairman won't allow him to look at the books.

That's seems sensible. :blink:

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So the Prez gets to appoint the Fed chairman, but the Fed chairman won't allow him to look at the books.

That's seems sensible. :blink:

Larry Summers and print.

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AIG Larry Summers and the Politics of Deflection

by F. William Engdahl

(snip)

Larry Summers is the man directly responsible for the mess. As Clinton Treasury Secretary from 1999-January 2001 he shaped and pushed the financial deregulation that unleashed the present crisis. He was Treasury Secretary after July 1999 when his boss, Robert Rubin left to become Vice Chairman of Citigroup, where Rubin went on to advance the colossal agenda of deregulated finance directly.

As Treasury Secretary in 1999 Summers played a decisive role in pushing through the repeal of the Glass Steagall Act of 1933 that was instituted to guard against just the kind of banking abuses taxpayers now are having to bail out. Not only Glass-Steagall repeal. In 2000 Summers backed the Commodity Futures Modernization Act that incredibly mandated that financial derivatives, including in energy, could be traded between financial institutions completely without government oversight, ‘Over-the-Counter’ as in where the taxpayer is now being dragged. Credit default Swaps, at the center of the current storm, would not have been possible without Larry Summers and the Commodity Modernization Act of 2000. He is now the White House Economic Council chairman, mandated to find a solution to the crisis he helped make along with Tim Geithner, his friend who is Treasury chief. Foxes should never be asked to guard the henhouse.

(snip)

http://www.financialsense.com/editorials/e.../2009/0318.html

Larry is basically satan in a suit.

Edited by MOP

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If Larry gets in it really is game over. :ph34r:

He is almost certainly going to get in, they are definitely going to print even if he doesn't and the whole thing is going to collapse.

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