Embattled Federal Reserve Chairman Ben Bernanke won confirmation for a second term Thursday, but only by the closest vote ever for the crucial post and after withering criticism from lawmakers for bailing out Wall Street while other Americans suffered in recession.
The Senate confirmed Bernanke for a new four-year term by a 70-30 vote, a seemingly solid majority but 14 votes worse than the closest previous vote for a Fed chairman.
The Senate battle over Bernanke's confirmation has been a test of central bank independence, a crucial element if the Fed is to carry out unpopular but economically essential policies. Its decisions on interest rates can have immense consequences, from the success or failure of the largest companies to the typical home-buyer's ability to get an affordable loan to the price of cereal at the grocery or gas at the corner station.
Created by Congress in 1913 after a series of bank panics, the Federal Reserve is an independent agency, supposedly outside politics, but its chairman is typically assailed by lawmakers and others when the economy falls and jobless ranks lengthen.
"Bernanke fiddled while our markets burned," huffed Richard Shelby, of Alabama, the top Republican on the Senate Banking Committee, during Thursday's debate. "Ben Bernanke's Federal Reserve played a key role in setting the stage for the financial crisis."
Shelby and other opponents blame Bernanke for failing to spot problems leading up to the crisis, for lax bank regulation and for not cracking down on dubious home mortgage practices. All those missteps contributed to the recession, they contend.
Supporters see it far differently, crediting him with preventing the Great Recession from turning into the second Great Depression.
"The chairmanship of Ben Bernanke has in no small measure made it possible for this nation to avoid a catastrophe," said Senate Banking Committee Sen. Christopher Dodd, D-Conn.
Supporter Chuck Schumer, D-N-Y., worried that the bitter fight over the nomination would send "the message that the Federal Reserve and its monetary policy decisions are under the thumb of Congress. Businesses will be faced with the prospect that the Fed might not be able to do what's necessary for the economy because of pressure from Congress."
The vote on his confirmation came at nearly the last possible moment — Bernanke's current term expires Sunday.
The confirmation vote was preceded by a critical preliminary ballot to block a filibuster by opponents. He needed 60 votes rather than a simple majority and got 77, to 23 against. The closest previous final confirmation vote for a Fed chairman was 84-16 for Paul Volcker's second term in 1983 following another severe recession.
After Thursday's vote, Treasury Secretary Timothy Geithner said, "The Senate did the right thing. Chairman Bernanke will continue to play a vitally important role in guiding the nation's economy."
First appointed by President George W. Bush and then re-nominated by President Barack Obama, Bernanke found himself without a broad partisan constituency in the Senate.
"Although the Fed can print money, it can't print political capital," said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a consulting firm that advises financial institutions.
Bernanke's role in bailing out Wall Street has angered many Americans, who are still struggling under double-digit unemployment, stagnant paychecks, cracked nest eggs and record home foreclosures. In an election year in which the economy's health is still precarious, senators were hearing those complaints loud and clear.
"A vote for Ben Bernanke is a vote for bailouts," said Sen. Jim Bunning, R-Ky., a longtime critic.
Bernanke has especially upset lawmakers with his support of a $182 billion rescue of insurance giant American International Group Inc. Hefty bonuses to AIG executives and billions in payments to AIG's Wall Street partners added to the outrage. Criticism mounted as unemployment rocketed to 10 percent.
Bernanke advocates argue that the Fed chairman is being blamed for the failure of institutions over which the Fed had no authority. What's more, they say the countermeasures he took to intervene were exactly what Congress created the agency to do.
"Much of the anger directed at the Fed and the uncertainty regarding Bernanke's reconfirmation is terribly unfortunate — both because of the impact it might have on the central bank going forward, and also because much of the scorn is undeserved," said John Dearie, a former officer of the New York Fed now serving as executive vice president of the Financial Services Forum, an industry group.
The Federal Reserve acts as the "lender of last resort" to banks when they can't get money elsewhere. That's important for the nation's financial and economic stability.
Bernanke's confirmation comes as Congress is writing an overhaul of financial regulations aimed at avoiding another financial crisis. The chairman has had to defend the Fed against efforts to diminish its authority.
A House bill would remove its power to oversee consumer protections and would subject it to a sweeping congressional audit. A Senate bill seeks to create a separate consumer entity as well, and would create a single banking regulator that would also strip the Fed of its supervision of bank holding companies.
Bernanke has admitted making mistakes — including underestimating the threat of a booming housing market that eventually went bust and the resulting fallout to the economy. But he insist he has the tools, the know-how and the political backbone to safely steer the recovery from the worst recession since the 1930s. The biggest challenge facing Bernanke this year: deciding when and how to reverse course and boost interest rates to sop up the unprecedented money pumped out during the crisis. That's important to prevent an outbreak of inflation.
A scholar of the Great Depression, Bernanke, 56, spent most of his professional career in academia, including 17 years teaching economics at Princeton. He came to Washington to take a job at the Federal Reserve, working with then-Chairman Alan Greenspan. Bush selected him to be his top economist. After that, he was sent to run the Fed starting in 2006.