President Obama likes to remind audiences that we inherited a horrible situation from President Bush. But even as he blames his predecessor, Obama sometimes has a hard time distinguishing his policies from Bush II. Bruce Bartlett makes that case in a very interesting Forbes article that says Obama should let go of Fed Chair Ben Bernanke and Treasury Secretary Tim Geithner. Good ideas?
Obama could also have explained how the Federal Reserve's easy money policy created the housing bubble, the crash of which is at the heart of our current economic problems...
I agree that the Federal Reserve's easy money and the the federal government's housing policies played a role in the sub-prime meltdown, but I don't see any political benefit in explaining the crash by blaming the Fed just as you're proposing to make it the ultimate regulator of the nation's largest banks.
...Yet he reappointed Republican Ben Bernanke as chairman of the Federal Reserve rather than using the expiration of his term as an opportunity to break from the past and chart a new course by at least appointing a Democrat like San Francisco Fed President Janet Yellen. Given that Bernanke served as Bush's chief economic adviser in the White House before becoming Fed chairman, this should have been a no-brainer.
I'm with Megan here. Reappointing Ben Bernanke was the real no-brainer, and not just because a uncertainty at the Fed would have scared bond investors and the stock market. Let's say the White House decided to be against Bernanke's reappointment. Immediately you've guaranteed that (almost?) every Republican will support him -- he's a Bush appointee, after all. If only ten Democratic senators decided to buck the White House and give Ben a second term, the admnistration faces an embarrassing loss on an important economic vote where it had no business sticking its head out. Getting behind a liberal economist like Yellen wouldn't have been worth it.
Similarly, in appointing Tim Geithner as Treasury secretary, Obama lost an opportunity to blame the previous administration for its response to the financial crisis in the fall of 2008. As president of the Federal Reserve Bank of New York, Geithner was up to his neck in the bank bailout that is reviled equally by those on the right and the left. And as more and more details about the backroom deals involving billions of taxpayers' dollars and the vast profits made by the very bankers who caused the crisis come to light, the worse both Geithner and Obama look.
My money is on Geithner sticking around, but let's brainstorm a bit. What's the political upside/downside of letting Tim Geithner go right now and shifting toward a populist bank policy by filling Treasury with Volcker or Elizabeth Warren? Some Republicans will claim the White House is in chaos, that "the wheels are falling off," and so on. The bankers will revolt and threaten recriminations, but if they complain too loudly it would only strengthen antagonism toward Wall St. The upside is that the White House can say with conviction, It's a new day. Last year was about rescuing Wall Street, and we had the right personnel for that. This year is about reforming Wall Street, and we need the right personnel for that.
Not saying it should happen, just weighing pros and cons... Thoughts?
Update: Bruce Bartlett responds via email:
I think you misunderstood my point. I wasn't saying that I don't support Ben. I do. I'm just saying that as a purely political matter it was a mistake for Obama to reappoint him when there are well qualified Democrats available. Same with Tim. I'm not saying he should be fired, only that he shouldn't have been appointed in the first place. As I have blogged, I don't think it makes sense to fire Tim at this time because there's no obvious replacement for him and given the problems of getting Treasury appointees confirmed, I think it would be unwise to leave the department rudderless.
I think we agree on Geithner.