POLITICO (Washington) - The anti-Ben Bernanke tide seems to have turned, but the nail-biter vote count shows there's no love lost for the Federal Reserve chairman or the institution he leads.
Bernanke now seems likely to survive a confirmation vote for a second term, despite a groundswell of Senate opposition in recent days. But a close vote could have very real consequences for the future of the Federal Reserve, not least in the outcome of financial reform legislation that's still percolating in committee.
That's because the intense public attention focused on the Bernanke vote could mean senators, especially Democrats, who ultimately vote to support him will seek out other ways to show they're responding to voters' anger.
Democratic leaders are urging their members to look for other ways to score their political points back home. Majority Whip Dick Durbin (D-Ill.) said he's telling fellow Democrats that "a protest vote or a negative vote on Chairman Bernanke isn't the only opportunity to show the American people that you care. We're going to have a chance to get a jobs bill; we're going to have financial regulatory reform where we can be able to change the way the banks do business," Durbin said Monday.
One possible response to that voter angst would be to support legislation to expand audits of the secretive central bank, an idea that has gained more than 300 supporters in the House. Such a move has become a rallying cry among progressives and conservatives alike, who are angry over the extraordinary measures the central bank took during the financial crisis on behalf of the biggest financial institutions and its refusal to turn over many of the details of just who got all the money.
That means calls for more transparency could turn into specific support for audit-the-Fed legislation sponsored by Vermont independent Bernie Sanders. Right now, it has 31 co-sponsors, including Republicans like tea party favorite Jim DeMint (R-S.C.) and National Republican Senatorial Committee Chairman John Cornyn of Texas.
Senators who vote for Bernanke "will be pressed to justify how they can support this when somebody has handed out trillions of dollars ... to private financial institutions here and abroad and insists that the terms and conditions of that remain secret," said Robert Borosage, co-director of Campaign for America's Future, a progressive group that's advocating for the audit legislation.
"There's a lot more interest" in the bill since the nomination debate heated up, DeMint told POLITICO.
Fed officials believe the legislation would undermine the perceived independence of the central bank that is crucial to its credibility in global markets.
And Bernanke played defense on that front during his meeting with Durbin Monday. "Although he is for transparency in their transactions, he wants to preserve - and I understand why we should preserve - the basic independence of the Federal Reserve" and its decision-making from political influence, Durbin told reporters after the meeting.
Bernanke is also in the midst of fighting for the Fed's future on Capitol Hill. Members of the Senate Banking Committee are poised to cut back on the power of the central bank as part of financial reform legislation. The debate right now is focused on how far.
It's quite likely the Fed will lose its consumer protection rule making, despite Bernanke's vigorous efforts to the contrary. A tight confirmation vote won't make keeping that power any easier.
Senators in both parties also want to strip the Fed of at least some of its supervisory authority over financial institutions, though debate continues over whether the Fed should retain oversight over bank holding companies like Goldman Sachs. The confirmation debate could tip the Senate toward taking away all of that authority. The Fed's role in a new systemic risk oversight council is also in question.
More immediately, some analysts see a potential market impact from the highly charged debate — even if Bernanke is confirmed.
"The market is going to interpret that there are consequences for the political independence of the Fed. Investors are going to be wary, for at least a while, that the Fed is going to be looking very closely at Capitol Hill and the White House," said Brian Gardner, an analyst with Keefe, Bruyette & Woods. Concerns over politicization of the central bank make investors fear the Fed will be more tolerant of inflation — something they never like.
A narrow victory for Bernanke could also lead to an open season of second-guessing the Fed as it tries to unwind the bailouts, which would shake markets, analysts said.
Many of the senators who plan to vote no on Bernanke's nomination cite the failure of the institution itself — its lack of transparency, its concern for Wall Street rather than consumers — as reasons for their opposition.
John McCain (R-Ariz.) became the latest no vote on Monday, bringing the total to at least 17 senators who have publicly declared their opposition, including four Democrats, 12 Republicans and one independent. But Bernanke seemed to pick up some momentum Monday, and 35 senators have committed to "yes" votes — with the most recent support coming from Finance Committee Chairman Max Baucus and Dianne Feinstein (D-Calif.).
But even declared Bernanke supporters cite changes they nonetheless expect to see. John Kerry (D-Mass.) stressed in his statement of support over the weekend that "much more must be done to provide sufficient oversight and consumer protections."
Majority Leader Harry Reid (D-Nev.) said he will hold Bernanke to the "highest standards" of "transparency and accountability."
While Bernanke supporters on both sides of the aisle expressed confidence that Bernanke had the 60 votes needed to break a filibuster and win confirmation, the final vote tally could still be close. That's because not every Democrat who votes "yes" to block the filibuster plans to vote "yes" on the nomination itself, Durbin said.
Durbin said there's no firm count yet, "but we'll need Republican votes, there's no question."
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