Calm in Crisis Won Fed Job

AUGUST 26, 2009

Calm in Crisis Won Fed Job
Obama Sticks With 'Bold, Persistent' Chief, but Next Term Could Be Tense
(http://online.wsj.com/article/SB125120274221856591.html)

By JON HILSENRATH, ELIZABETH WILLIAMSON and JONATHAN WEISMAN
President Barack Obama, standing in a sweaty elementary-school gym on Martha's Vineyard, nominated Ben Bernanke for a second term as Federal Reserve chairman, the culmination of several weeks of carefully orchestrated and closely guarded discussions among the president and a handful of top advisers.

The Unmoved and Unmoving Ben Bernanke
WALL STREET CRISIS


AFP/Getty Images

Bernanke in April 2008 testifies before Congress two weeks after the Fed stepped in to avert the collapse of Bear Stearns.
MORTGAGE CRISIS


Associated Press

Bernanke waits to speak to an FDIC forum in July 2008 as clouds gather over mortgage titans Fannie Mae and Freddie Mac.
RENOMINATION ELATION


AFP/Getty Images

Bernanke appears at a news conference Tuesday after President Obama named him to a second term.
"Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free fall," Mr. Obama said, with the Fed chairman standing at his side. His "bold, persistent experimentation has brought our economy back from the brink."

The move to offer another four-year term to the man initially appointed by Republican President George W. Bush reflected a decision by Mr. Obama, Treasury Secretary Timothy Geithner and White House Chief of Staff Rahm Emanuel that the president's oft-cited commitment to "change" didn't apply to the Fed post.

Wall Street had been anticipating the news. The stock market rose modestly, but strong consumer-confidence and home-price numbers got most of the credit. Wall Street economists enthusiastically endorsed the decision. So did several, although not all, members of the U.S. Senate, who are expected to vote to confirm the renomination before Mr. Bernanke's term expires in January.

Since succeeding Alan Greenspan as Fed chief in February 2006, Mr. Bernanke, a 55-year-old Republican, has worked closely and harmoniously both with the Bush administration and the Obama administration to fight the worst recession since World War II. The next four years may be more tense. If the economy recovers as anticipated, Mr. Bernanke is expected to move -- probably not until next year -- to raise interest rates and tighten credit to avoid inflation. History suggests that moment will arrive sooner than many elected politicians and White House advisers prefer.

Some economists say Mr. Bernanke's reappointment could bolster the Fed's independence. If Mr. Obama had opted to replace Mr. Bernanke with a closer ally, it might have been seen in financial markets as an effort to assert more control over the central bank. Moreover, with another four-year term in hand, he may feel he has a freer hand to take actions the White House and Congress don't support.

Mr. Obama will have ample opportunities in the months ahead to shape Fed policy. He has already appointed one Fed governor, Daniel Tarullo, and has an opportunity to fill two more vacancies in the months ahead. The term of Fed Vice Chairman Donald Kohn, 66, expires in June 2010, possibly freeing up a senior position at the central bank.

Inside the White House, Messrs. Obama, Geithner and Emanuel began weighing the reappointment decision early in the summer. Lawrence Summers, the head of the president's National Economic Council and widely regarded as a rival to Mr. Bernanke, subsequently joined the conversations.

"The question was always continuity and stability and keeping us headed in what everyone believed was the best direction," said one administration official.

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Summers, Contender, to Stay Put Advice to Bernanke: Play to Your Strengths After Slow Start, Fed Chief Found His Groove Heard: Bernanke Risks Some Exit Wounds Fed Hearings to Focus on Regulatory Reform Deal Journal: Rating Bernanke the Deal Maker Noted: Bipartisan Tradition Is Alive Reactions: Economists | Lawmakers President Makes Safe Choice at Fed Econ: Move Is Early, Not Unprecedented See a timeline of Bernanke's Fed Career A look at previous Fed chairmen Journal Community
Vote: Did Obama make the right decision to reappoint Bernanke as Fed chairman? Discuss: How do you rate Bernanke's performance? Looking Back at Paul Volcker's Departure
Journal articles on former Fed Chief Paul Volcker's departure from the job in 1987:

Fed's Volcker Is Likely to Be Reappointed if He Wants, White House Aide Indicates (June 1, 1987)Volcker May Need an Appeal to Stay on Job (June 2, 1987)Nominee Greenspan Shares Volcker's Goals but Not Yet His Clout (June 3, 1987)Volcker's Decision to Quit Sealed at Reagan Meeting (June 3, 1987)Beefcake or Banking? The Choice Is Paul Volcker's on Leaving the Fed (July 13, 1987)Mr. Obama believed that Mr. Bernanke had restored some of the markets' lost confidence. Mr. Summers didn't object to the reappointment, which appeared increasingly likely as the economy healed. Mr. Geithner, who worked closely with Mr. Bernanke first as president of the New York Federal Reserve Bank and later as Treasury secretary, polled visiting chief executives about Mr. Bernanke, and heard mostly favorable comments.

Mr. Geithner asked Mr. Bernanke in late July if he would be interested in another term, without signaling that an offer would be made. Mr. Bernanke said he would.

About three weeks ago, Mr. Obama and his advisers reached a consensus that Mr. Bernanke should stay. They concluded there was no reason to delay the announcement. Getting the news out, they believed, would head off nervousness in financial markets. By announcing the renomination Tuesday, while he was on vacation, Mr. Obama overshadowed news of the growing dimensions of the deficit the federal government faces over the next 10 years, as well as continuing attacks on his attempts to restructure the health-care system.

Last Wednesday afternoon, Mr. Geithner invited Mr. Bernanke to the White House. He arrived at about 8 p.m. Mr. Obama praised the Fed chairman's handling of the financial crisis and asked him to serve another term, officials say. Mr. Bernanke accepted, and the two talked a little about the economy, although not in great depth. The conversation lasted about 10 or 15 minutes.

Mr. Bernanke then flew to the Federal Reserve Bank of Kansas City's annual summer conference in Jackson Hole, Wyo. On Friday, he mounted a defense of his policies and went horseback riding with Alan Blinder, an old friend and former Princeton colleague. Mr. Bernanke flew back Saturday to Washington, giving no hint of the news, and worked at his office Sunday, as he often does.

The White House alerted the media Monday night to the pending announcement. Early Tuesday morning, Mr. Bernanke flew from Andrews Air Force Base to Martha's Vineyard on a military Gulfstream 3 jet. The White House told Fed staff members that Mr. Obama would be wearing slacks and a blazer, but no tie. Mr. Bernanke dressed the same, but brought along a tie just in case. Mr. Bernanke promptly returned to Washington; Mr. Obama went to play golf.

From the moment Mr. Obama was elected, Mr. Bernanke's fate has been the subject of debate and uncertainty within the administration and in financial markets. All of the past four presidents have reappointed Fed chairmen named initially by their predecessors. In two cases -- Ronald Reagan's reappointment of Paul Volcker and Bill Clinton's reappointment of Alan Greenspan -- presidents reappointed chairmen from another party.

At first, the likelihood that Mr. Bernanke would be reappointed was diminished by the fragility of the economy and the presence in the White House of Mr. Summers, an accomplished economist and former Treasury secretary who also had a stormy tenure as president of Harvard University. Some of Mr. Bernanke's friends in academia bristled as rumors began circulating shortly after the election that Mr. Summers was considered Fed chairman in waiting.

But as the markets and economy stabilized in the spring, a reappointment of Mr. Bernanke began looking likelier, despite some congressional and public criticism of him for his role in an unpopular bailout of Wall Street. In recent appearances before congressional committees, Mr. Bernanke has met unusual hostility about the Fed-orchestrated rescue of American International Group Inc. and his role pushing Bank of America Corp. to complete its takeover of Merrill Lynch & Co.

"Consideration of Chairman Bernanke's nomination to serve a second term raises several important issues," Sen. Richard Shelby of Alabama, senior Republican on the Senate Banking Committee, said on Tuesday. "The Banking Committee should carefully examine the impact of the Fed's failures as a bank regulator, how such failures contributed to the financial crisis, and whether Chairman Bernanke's performance as the chief regulator merits his reconfirmation."

Bernanke's Challenges for the Next Four Years
1:24
President Barack Obama chose the safer path by reappointing Ben Bernanke as the head of the Federal Reserve. But WSJ's David Wessel says Mr. Bernanke has two big challenges ahead: proving his independence from the President and deciding when to tighten credit.
Bernanke Reappointment Politically Shrewd
2:04
As President Obama trumpets the turnaround in the economy, WSJ's Executive Washington Editor Gerald F. Seib says the reappointment of Federal Reserve chairman Ben Bernanke, therefore, is a politically shrewd move.
Mr. Bernanke may have helped his case for reappointment by launching an unusually high-profile public-relations campaign, ostensibly to explain and defend the Fed to the American public. He appeared on television's "60 Minutes" in March and at a town-hall meeting on public television in July.

In the two years since the onset of the global financial crisis, Mr. Bernanke's Fed has cut short-term interest rates nearly to zero, has initiated a slew of ways to bypass banks to keep credit flowing in the economy, and is on course to purchase up to $1.25 trillion in mortgage-backed securities and $300 billion in long-term U.S. Treasurys. Plotting a slow exit from these programs is among Mr. Bernanke's top priorities now. If he moves too soon, it could stall a nascent recovery; if he moves too late, he could spur inflation.

Economists believe the Fed will start to increase short-term interest rates by the middle of next year. Winding down the Fed's purchases of mortgage securities could cause mortgage rates to rise even sooner. Such rate increases could be unpopular, although the Obama administration has done nothing to suggest yet that it is unhappy with Mr. Bernanke's strategy.

Another priority of Mr. Bernanke is to keep the pressure on Congress to adopt changes to the financial-regulatory system to fix flaws revealed by the economic turmoil. Mr. Bernanke has become concerned in recent weeks that a healing economy could reduce the will of lawmakers to revamp the system. That worry came up repeatedly this past weekend at Jackson Hole in meetings among central bankers. "We may be relaxing too soon," said Stanley Fischer, governor of the Bank of Israel, who was Mr. Bernanke's thesis adviser at the Massachusetts Institute of Technology.

Journal Communitydiscuss“ Perhaps the commentary should not be why or why not Bernanke is the head of the Federal Reserve, but instead why is the Federal Reserve above our government? ”
—Ralph Morrone High on Mr. Bernanke's to-do list is developing rules to close big, failing financial institutions like Bear Stearns Cos. and Lehman Brothers Holdings Inc. outside of bankruptcy court. It has been nearly 18 months since the failure of Bear Stearns, and Congress hasn't passed legislation giving the Fed and Treasury the authority they are seeking to deal with institutions other than banks that they deem too big to fail.

Tensions over the regulatory proposals have emerged in recent weeks among the Fed, lawmakers and the White House. Mr. Bernanke has opposed a proposal by Mr. Geithner to strip the Fed of its power to oversee consumer-finance protections. Lawmakers, including Senate Banking Chairman Christopher Dodd of Connecticut, are wary of giving the Fed more power to oversee large financial institutions after some big banks, like Citigroup Inc., teetered under its oversight. Earlier this month, Mr. Geithner lashed out at other financial regulators in a private meeting for not taking a unified stance with the Treasury on overhauls.

—Deborah Solomon contributed to this article.
Write to Jon Hilsenrath at Jon.Hilsenrath@wsj.com, Elizabeth Williamson at Elizabeth.Williamson@wsj.com and Jonathan Weisman at Jonathan.Weisman@wsj.com

Printed in The Wall Street Journal, page A1

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Bush warns of ‘long and painful recession’

By Andrew Ward in Washington
Published: September 25 2008 03:43 Last updated: September 25 2008 05:26

George W. Bush said the US was facing a “serious financial crisis” and risked a “long and painful recession” if Congress failed to pass his administration’s proposed $700bn bail-out of Wall Street.
In a televised address on Wednesday evening, the president said he had invited congressional leaders and both presidential candidates to the White House on Thursday in a bid to break the deadlock.
Barack Obama and John McCain, the rival presidential contenders, issued a joint statement urging Democrats and Republicans to work together to prevent “an economic catastrophe”. They said the Bush administration’s proposal was “flawed”, but agreed action was necessary. “This is a time to rise above politics for the good of the country,” they said.
Mr McCain sprung a surprise earlier on Wednesday by vowing to suspend campaigning and return to Washington to help broker an agreement, amid deep unease on Capitol Hill over the rescue package.
Democrats and Republicans alike have so far resisted the administration’s demands for runner-stamp approval of the deal and are pushing for amendments. The Democratic aide to a senior congressional leader told the Financial Times that legislators were inching closer to a compromise, with key House and Senate members scheduled to meet on Thursday morning to put the finishing touches on a bipartisan bill.
Nancy Pelosi, the Democratic House Speaker, said Congress was “committed to passing bipartisan legislation that will stabilise the markets, protect taxpayers, establish tough oversight, and curb excessive CEO compensation. And we will pass it soon”.
Mr Bush signalled willingness to accept changes to his proposal, including the creation of a bipartisan board to oversee implementation of the bail-out and measures to prevent “failed executives” profiting from public funds.
In his most lengthy and detailed remarks since the crisis struck, Mr Bush said the US risked slipping into “financial panic” if Congress failed to act and warned that the consequences would spread from Wall Street to Main Street. “Ultimately, our country could experience a long and painful recession,” he said.
Mr Bush voiced sympathy for those who resent the prospect of taxpayers’ money being used to prop up Wall Street and said his natural instinct was to allow bad investments to be punished. But he argued that circumstances were so serious that aggressive intervention was unavoidable. “Major sectors of America’s financial system are at risk of shutting down,” he said.
The proposals would help consumers and businesses by unfreezing the credit market and send “a signal to markets around the world that America’s financial system is back on track”, he added.
He argued that much, and perhaps all, of the $700bn committed to the bail out could be recouped by the government as the financial system returned to health. “The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal,” he said. “And when that happens, money will flow back to the Treasury as these assets are sold.”
Despite the recent “corrections” and “instances of abuse”, Mr Bush said “democratic capitalism” remained “the best system ever devised”.
The 15-minute address followed criticism of Mr Bush’s low-key role in his administration’s response to the crisis, having previously made only two, brief statements since the collapse of Lehman Brothers last week.
Hank Paulson, the Treasury secretary, has been the public face of the administration’s bail-out plans and many Democrats and Republicans are uneasy about the unchecked power granted to him by the original proposal. Congress wants tougher oversight and accountability of how public funds will be used.
Many Republicans on Capitol Hill have been waiting for Mr McCain to take a clear position on the rescue package before giving it their blessing – with some keen for him to oppose a deal that conservatives have condemned as “economic socialism”.
But the joint statement by the presidential candidates suggested Mr McCain was likely to support a compromise bill. “Now is a time to come together – Democrats and Republicans – in a spirit of cooperation for the sake of the American people,” they said. “The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.”
Copyright The Financial Times Limited 2008

Venezuela signs Chinese oil deal

By Warren Bull BBC Americas analyst
President Hugo Chavez of Venezuela has signed a series of energy co-operation deals with China.
He said oil exports from Venezuela to China could rise threefold by 2012, to one million barrels a day.
Venezuela, one of the world's largest oil producers, is seeking new markets to reduce its dependency on exports to the United States.
Mr Chavez has now continued to Russia, for his third visit to Moscow within three months.
Energy co-operation
After holding talks with his Chinese counterpart Hu Jintao, the Venezuelan president told journalists in Beijing that China was a super-giant, which needed more energy, and that Venezuela was committed to help provide it.
"While the world enters an energy crisis, we are investing," said Mr Chavez.
Apart from oil exports to China, other plans include joint projects to build three oil refineries in the country capable of processing Venezuela's heavy crude oil.
As in Latin America, Mr Chavez is seeking to use his vast oil reserves to forge alliances away from Washington's influence.
Now he begins a visit to Russia, where, as with Beijing, energy co-operation is central to Venezuela's relationship.
But so too is military firepower.
In the past few years Hugo Chavez has signed arms contracts with Russia worth more than $4bn, and only last week a Russian Navy squadron left for Venezuela, where the two countries are scheduled to hold joint exercises in the coming weeks.
The US government says it is not concerned by the developments, but equally it cannot be happy about the encroachment by Russia, or China, into a region Washington has long considered its backyard.
Story from BBC NEWS:

Kadar inflasi tertinggi dalam masa 27 tahun

Sep 24, 08 7:50pm

Kadar inflasi telah melonjak ke paras 8.5 peratus pada bulan Ogos - yang tertinggi dalam tempoh 27 tahun - ekoran peningkatan harga makanan dan bahan api, demikian menurut angka rasmi yang dikeluarkan hari ini."Ia tinggi sedikit daripada yang dijangkakan, tetapi Bank Negara tidak akan menaikkan kadar faedah untuk memastikan pertumbuhan," kata Wan Suhaimi Saidi, ahli ekonomi dari Kenanga Investment Bank."Ia tinggi sedikit daripada jangkaan saya. Saya jangka 8.4 peratus. Saya tidak fikir kerajaan akan menaikkan kadar faedah penting. "Ia akan dikekalkan pada kadar 3.50 peratus sehingga akhir tahun untuk menyokong pertumbuhan," katanya kepada agensi berita AFP.Jabatan Perangkaan telah menyemak semula dengan menurunkan angka inflasi bagi bulan Julai kepada 8.3 peratus. Ia sebelum ini meletakkan kadarnya pada 8.5 peratus.Menurutnya, kos makanan dan minuman bukan alkohol meningkat 11.7 peratus dalam bulan Ogos, berbanding dengan setahun yang lalu. Kadar inflasi yang tinggi sudahpun menjejaskan pengguna dan mendorong ramai rakyat Malaysia mengurangkan perbelanjaan mereka bagi makanan."Peningkatan (kadar inflasi bagi bulan Ogos) ditunjukkan dalam kumpulan-kumpulan terpilih utama, iaitu makanan dan minuman bukan alkohol," katanya dalam satu kenyataan.Data bulan Ogos menunjukkan peningkatan harga bagi kebanyakan kategori, termasuk pengangkutan yang melonjak 21.8 peratus, dan restoran dan hotel yang meningkat 6.5 peratus.Kerajaan telah menaikkan harga minyak sebanyak 41 peratus dalam bulan Jun, sebagai langkah untuk mengurangkan peningkatan kos subsidi, tetapi telah membayangkan bahawa kadar harga boleh diturunkan tidak lama lagi.Inflasi kekal tinggiSelepas mengumumkan Indeks Harga Pengguna (CPI) bagi bulan Ogos, Menteri Perdagangan Dalam Negeri dan Hal Ehwal Pengguna, Datuk Shahrir Abdul Samad berkata, beliau tidak menjangka CPI bagi bulan September akan lebih rendah."Walaupun, kesan sepenuhnya pengurangan harga petrol dalam bulan Ogos dan sekarang belum diambilkira sepenuhnya, CPI bagi bulan September mungkin tidak lebih rendah."Harga petrol yang rendah dijangka dijangka akan diimbangi oleh peningkatan perbelanjaan semasa cuti hari raya dan 30 surcaj bagi pengangkutan awam," kata Shahrir.Bagaimanapun, beliau tidak menjangka CPI telahpun sampai ke paras puncaknya.Shahrir berkata, kadar inflasi nampak telah stabil ekoran peningkatan bulan ke bulan hanya 0.2 peratus.Bagaimanapun, kadar purata inflasi bagi tahun ini dijangka di sekitar 4.8 peratus.

Harga minyak turun lagi 10 sen

Sep 24, 08 2:44pm

Kerajaan hari ini mengumumkan penurunan sebanyak 10 sen lagi harga minyak berkuatkuasa esok.
Berikutan itu, harga minyak petrol jenis RON 97 kini turun kepada RM2.45 seliter manakala harga RON 92 pula turun kepada RM2.30 seliter.
Kerajaan juga mengumumkan pengurangan minyak diesel, juga sebanyak 10 sen, kepada RM2.40 seliter.
Ketika mengumumkan penurunan harga minyak tersebut, Perdana Menteri, Datuk Seri Abdullah Ahmad Badawi berkata, ia diputuskan dalam mesyuarat jemaah menteri hari ini."Keputusan ini diambil setelah mengambil kira harga purata minyak dunia untuk tempoh sebulan terakhir ini," katanya dalam satu kenyataan petang ini.Harga-harga berkenaan, tambah beliau, ditentukan dengan mengambil kira harga sebenar petrol daripada 1 September hingga 22 September lalu.Abdullah berkata, untuk tempoh sebulan terakhir ini, harga minyak dunia telah mengalami turun naik yang ketara. "Namun secara purata, ia telah menurun sedikit berbanding harga purata sebelumnya. Namun begitu, nilai ringgit berbanding dolar Amerika pula menyusut sepanjang tempoh yang sama. "Oleh itu, mengaplikasikan formula yang digunapakai oleh kerajaan dalam menentukan harga runcit sebelum ini, pengurangan sebanyak 10 sen ini merupakan nilai pengurangan maksimum yang dapat diberikan oleh Kerajaan."Pelarasan harga minyak ini juga merupakan pelarasan harga yang kedua dilakukan oleh Kerajaan setelah pelarasan pertama dilakukan pada 23 Ogos yang lalu," katanya.Sebelum ini, kerajaan telah menurunkan harga minyak sebanyak 15 sen.Sehubungan, perdana berkata, kerajaan berharap penurunan harga minyak yang berkuatkuasa esok, akan dapat meringankan beban orang ramai, terutamanya dalam menyambut hari raya Aidilfitri.

Buffett's firm invests in Goldman

Berkshire Hathaway, the company owned by US investment guru Warren Buffett, has bought $5bn (£2.7bn) worth of Goldman Sachs shares.
Mr Buffett, the world's most famous investor, said Goldman was an "exceptional institution".
Hit by the crisis that has engulfed other major US financial institutions, it was forced to change its status from an investment bank this week.
Goldman Sachs said the deal would bolster its finances.
Berkshire Hathaway is buying $5bn of preferred stock bearing a 10% annual interest rate.
It could increase its holding of Goldman shares as under the terms of the deal, it has the option of buying $5bn of common stock for $115 per share at any time in the next five years.
In addition, Goldman Sachs said it was raising at least $2.5 billion in common equity in a public offering.
Goldman said it was pleased that Warren Buffett had made such a significant investment.
"We view it as a strong validation of our client franchise and future prospects," said chairman and chief executive Lloyd C. Blankfein.
"This investment will further bolster our strong capitalisation and liquidity position."

Story from BBC NEWS: