Markets, Bernanke and the political calculus of re-nomination
I think Bernanke probably will still get through. Congress need sixty votes to remove a filibuster hold. Thereafter, they only need fifty votes to get Bernanke through. I suspect Obama will go to senators like Barbara Boxer and say:
Look, vote to remove the hold. Then you can vote against Bernanke for your constituents because we will get fifty votes, but maybe not sixty.
She and others like her will go along because she will get what she wants. They will do this with a bunch of the wayward Dems. At that point, perhaps the market will rally somewhat on the prospect of a Bernanke appointment.
I hope I’m wrong. But I think the only way Bernanke doesn’t get through is if they vote to remove the hold; and then the Republicans say:
Okay, let the Dems vote for Bernanke. Bernanke stands for bail out. Bernanke stands for no change. Obama, however, now has a big credibility problem. Let the Dems increase their credibility problem, the GOP might decide. We will then vote against the Fed chairman.
I don’t know if the GOP is that smart, but a lot of them may go along with this strategy. So there may well be more Republicans who vote against Bernanke than anyone expects. Note that today John McCain – the guy who used to sing paeans of praise to Greenspan – and Richard Shelby both came out against Bernanke. They want the Dems to take ownership of the bailouts. The Republicans are rubbing their hands at the prospect that the Dems will take ownership of the Bernanke re-nomination big time
But, perhaps if enough Republicans vote against Bernanke, maybe more Dems do as well. If it happens that Bernanke can’t even get fifty percent, it will be a huge shock and the market might crash. I don’t see this the likeliest scenario, but I do give it as a possibility.
Frankly, Obama should not be going to bat for Bernanke like this – just as he should go the whole hog and and fire Geithner and Summers. Obama has belatedly realized after losing the New Jersey and Virginia gubernatorial races by a mile and the losing in Massachusetts – also by a mile relative to expectations – that his cottoning to Wall Street has cost his party far more than the Democrats ever imagined.
Now Obama looks like a fake when it comes to change. He has a huge credibility problem with his base – HUGE. So how does he overcome it? Going out there with Volcker and giving anti-banker speeches isn’t going to get it done. People don’t believe him. Backing Bernanke gives them reason not to believe him. It’s a HUGE tactical mistake. Obama is still playing games on the change issue – and the electorate will smell it out.
But, my guess is that the Rubins of the world have told him that if Bernanke isn’t confirmed there will be a market crash and he will be blamed for it. Unfortunately, Obama has fallen for this.