Ben Bernanke

Obama is wise to reappoint Republican and Bush appointee Ben Bernanke to a second term as Federal Reserve chairman. Larry Summers, Obama’s White House economic advisor, wanted the job and was seemingly set to get it. But if Obama went with Summers, he would have to find a new economic advisor, and Obama would saddle his team with full responsibility for whatever went wrong economically.

By sticking with Bernanke, who will face tough questioning and many “no” votes from Congress, Obama continues to share blame for the recession with the Bush team and its Fed chair who failed to anticipate the severity of the housing and related credit crises, whose fingerprints are all over the Bear Stearns, Lehman Brothers, and AIG collapses along with the mishandled merger of Merrill Lynch into Bank of America, and who helped engineer the controversial taxpayer-funded bailout of major financial institutions. Moreover, Obama is making Bernanke the point person for getting financial reform legislation through Congress, and can leave Bernanke exposed and responsible for any interest rate hikes needed to cope with Obama’s looming federal deficits.

Furthermore, by reappointing Bernanke, Obama reassures stock market investors who credit Bernanke with acting swiftly once the crisis was underway to lower interest rates to zero and push out $2 trillion worth of credits, two actions that probably did the most to turn a Great Depression-like collapse into just a severe recession. Reappointing Bernanke, therefore, helps keep the current recovery going.

Bernanke found out last Wednesday about his reappointment, and two days later, at the Fed’s annual meeting, gave the kind of defense of his tenure as Fed chair that he may later present to Congress:

History is full of examples in which the policy responses to financial crises have been slow and inadequate, often resulting ultimately in greater economic damage and increased fiscal costs. In this episode, by contrast, policymakers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation. Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again.

Good move, Obama. You now become the sixth straight president, in my humble opinion, to handle correctly that key Fed chair appointment.