It remains a mystery how Obama could even think of staying the course with Bernanke. An even larger mystery is how Congress could confirm him for another term. Nobody forced Obama to run a campaign based on "change" so is it really asking too much for him to implement some kind of change? Renominating Bernanke is an insult to the American public who suffered in no small part as a result of his incompetence. Then again, they did tolerate Greenspan who was also hailed as a champion.
The problem now, just as it was during Bush and before that Clinton, is that there continues to be a firm belief in maintaining the same system and the same people who ushered in this failure. There is too much fear in Washington about tapping into anyone new. If this last recession couldn't shake confidence in the old guard, nothing will. The public has offered little support for this system or the same old people, but in Washington that doesn't count since it won't fund expensive political campaigns. For now, Washington will continue to fear change and stay the course.
Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.
"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.
