By Scott Lanman and Joshua Zumbrun
Jan. 22 (Bloomberg) -- Senate Majority Leader Harry Reid backed Federal Reserve Chairman Ben S. Bernanke for a second term, calling on the central bank chief to intensify efforts to pull the nation out of the worst recession since the 1930s.
“I will continue to impress upon Chairman Bernanke that his most important job as America’s central banker is to give families and businesses the peace of mind that their economy is working for them,” Reid, a Nevada Democrat, said in a statement.
Stocks extended losses earlier today after Reid’s support for Obama wavered and two other Democrats who face re-election this year, Barbara Boxer of California and Russ Feingold of Wisconsin, said they will oppose the 56-year old Princeton economist, splitting with President Barack Obama.
Bernanke has drawn fire from some lawmakers for lax regulation prior to the financial crisis and for bailouts of firms such as American International Group Inc. The Democratic party’s loss of a seat in Massachusetts this week has added to pressure on those senators facing re-election at a time of rising voter anger over the economy.
“You have this populist surge out there that’s been intensified and reinforced by the Massachusetts election,” said Norm Ornstein, a political scientist at the American Enterprise Institute in Washington, who said Bernanke is still likely to be confirmed. Keeping the nomination on track will “take some concerted lobbying on the part of the president and some of those around him.”
‘Worst Signal’
Christopher Dodd, the Senate Banking Committee chairman who proposes stripping the Fed of banking supervision authority, renewed his support for the Fed chief today. He said rejecting the Fed chief would send the “worst signal to the markets right now” and produce an economic “tailspin.”
“This is the most important central banker in the world,” said Dodd, a Democrat from Connecticut.
The Standard & Poor’s 500 Index was down 2.2 percent to 1,091.74 at 4:05 p.m. in New York. Treasury two-year note yields fell 4 basis points to 0.79 percent, and are down 8 basis points since Jan. 15.
“Bernanke is viewed by markets around the world as a positive for the U.S. economy and the uncertainty about his reconfirmation is accelerating today’s sell-off,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York.
Bush Nomination
Bernanke, who was nominated for his first term that started in 2006 by President George W. Bush, got the endorsement of his predecessor, Alan Greenspan, a fellow Republican.
“Ben Bernanke is far and away the best person to lead the Fed going forward,” Greenspan said today in an e-mailed statement. “He should be reconfirmed as soon as possible.”
As of 5:30 p.m. in Washington, senators were leaning toward support for Bernanke. Twenty-five said they would vote for Bernanke, while 16 were opposed or leaning against him and 27 were undecided.
Democratic senators favoring confirmation include Indiana’s Evan Bayh, Rhode Island’s Jack Reed and New York’s Charles Schumer. Republicans supporting Bernanke include George Voinovich of Ohio and Mike Johanns of Nebraska. Among opponents are Democrats such as Oregon’s Jeff Merkley and Republicans Jeff Sessions of Alabama and James Inhofe of Oklahoma.
Senator Richard Durbin of Illinois, the Majority Whip, is undecided about the Bernanke confirmation vote, his spokesman said.
Boxer, Feingold
Senate Finance Committee Chairman Max Baucus, a Democrat, and Judd Gregg, a Republican member of the banking committee, said there’s enough support for Bernanke to secure his Senate confirmation. His term ends on Jan. 31.
The Banking Committee voted 16-to-7 on Dec. 17 to recommend Bernanke’s nomination to the full Senate, with 12 Democrats and four Republicans in favor. Six Republicans and one Democrat, Merkley, were opposed.
Dodd reminded Republicans today that they initially named Bernanke to his post -- and that rejecting his nomination would amount to replacing him with a Democratic pick.
“Remember this was George Bush’s choice as well,” Dodd told reporters today. “Do they want to have the president make his choice for the chairman of the Federal Reserve? Do the Republicans really want that? That would be rather interesting to see.”
Procedural Holds
The Fed chief will probably need 60 votes in the Senate to break procedural holds from at least four lawmakers. Baucus, a Democrat from Montana, said that while Bernanke is likely to be confirmed, he didn’t know when the vote would take place.
“I can’t give you a date, but clearly he will get confirmed,” Baucus said. Asked if Bernanke’s confirmation is in trouble, Baucus said, “No.”
The loss in the Massachusetts election this week to fill the seat left vacant by the late Senator Edward M. Kennedy has shaken Democrats, making it harder for party leaders to rally support for Bernanke, said Ornstein.
Dodd faced a difficult re-election bid before his decision to retire because of favorable home loans he received and his ties to the financial industry that he has built as chairman of the Senate Banking Committee.
Dodd saw his popularity wane after reports in 2008 that he received discounts on home loans from Countrywide Financial Corp., now part of Bank of America Corp. He has said he was unaware that he was receiving preferential treatment and was cleared in August by the Senate Ethics Committee.
Reid Re-Election
Reid faces a tough re-election this fall in his home state of Nevada, where a recent poll shows him trailing two possible Republican opponents by at least eight percentage points.
A Public Policy Polling survey conducted Jan. 11-12 found that Reid trails Republican Sue Lowden 51 percent to 41 percent. It also found that Reid was behind former college basketball star Danny Tarkanian by 50 percent to 42 percent. The polls showed that Reid had only a 36 percent approval rating with voters and a disapproval rating of 58 percent.
Senator Byron Dorgan, a North Dakota Democrat who is retiring this year, said he will oppose Bernanke because the Fed chief rebuffed Dorgan’s request to identify firms that received loans from the Fed during the financial crisis.
“I just think that’s unacceptable,” Dorgan said. “I don’t think his nomination should come up until he provides the information that’s requested.”
Central Bank Loans
The Fed is appealing a federal judge’s August decision in a lawsuit filed by Bloomberg LP, the parent of Bloomberg News, to release names of firms that received central bank loans.
Traders at Intrade, a Web exchange for futures contracts based on political outcomes, see a 73 percent chance Bernanke will be reconfirmed, down from 93 percent yesterday. The contract has traded as high as 85 percent today. The bid-ask spread on contracts is currently 8.8 percentage points, indicating uncertainty about the odds of reconfirmation.
Under Senate rules, a motion to limit debate on Bernanke’s nomination would set up a procedural vote after two legislative days to curtail additional debate to 30 hours. Bernanke’s supporters need 60 votes to limit debate and clear the way for a final vote on whether to confirm him for another term.
Dodd and Senator Richard Shelby of Alabama, the panel’s senior Republican, have said the Fed failed to adequately supervise banks. Dodd has also said Bernanke deserved “substantial credit” for helping avert “utter economic catastrophe.”
Main Street Champion
“It is time for a change -- it is time for Main Street to have a champion at the Fed,” Boxer said today in a statement. “Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past.”
The Fed chairman has increased government backstops to banks and other firms and used the Fed’s balance sheet to revive credit, including through the purchase of $1.25 trillion in mortgage-backed securities.
“Under Chairman Bernanke’s watch, predatory mortgage lending flourished, and ‘too big to fail’ financial giants were permitted to engage in activities that put our nation’s economy at risk,” Feingold said in a statement.
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