Will Time's Person of the Year Lose His Job as Fed Chair?

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Time chose Fed Chair Ben Bernanke as its Person of the Year Wednesday. Sure, his expertise in the economics of the Great Depression gave him the intellectual confidence to flood the financial system with cash and cut interest rates to the bone. And, yes, the financial system appears to have survived what appeared in 2008 to be a global meltdown.But as Bernanke goes before the Senate, which must consider whether to confirm his reappointment as Fed chairman, he will have to deal with the fact that the very accomplishments that won him plaudits from Time have helped bring on a firestorm of protest against the power of the Fed. If he gets to keep his job, Bernanke may be left overseeing a far weaker Fed than the one he inherited in 2006.

In reviewing Bernanke's accomplishments, it's worth noting that he kept insisting that subprime mortgage problems were contained in early 2007. I found this surprising because in the summer of 2006, I was posting about the widespread effects of the collapse of real estate, and exactly three years ago today, I suggested shorting a subprime lender whose stock has since lost most of its value.

Heavily Favored to Return

Still, when Bernanke finally realized that the global financial system was collapsing, he took action. Ultimately, he cut interest rates to zero and pumped trillions into the global financial system because he recognized the similarities between the recent crisis and the Great Depression, and didn't want to see a repeat of the sordid 1930s.

Bernanke looks to be a shoo-in for a second term, according to Bloomberg News. The Senate Banking Committee voted 16 - 7 on Thursday to confirm his appointment for another term. Traders increased bets that Bernanke will be confirmed to 93.5% from 90% percent Thursday, according to Intrade.

Despite all this, he faces a ever-mounting criticism. As I posted, this has led to the formation of an odd alliance between House Financial Services Committee Chair Barney Frank (D-Mass.) and U.S. Rep. Ron Paul (R-Tex.), who both agree that the Fed needs to be audited. (On Thursday, I commented about this in a TV interview.)

End the Fed?

Paul hopes this move will be first step on the road to eliminating the Fed altogether and somehow replacing so-called fiat money with a return to the gold standard -- an outcome devoutly endorsed in the paranoid ravings of Paul followers everywhere. Meanwhile, Chairman Frank just wanted Paul's supporters to help him push his financial reform bill through Congress.

And if Sen. Chris Dodd (D-Conn.) has his way, Bernanke will be presiding over a Fed stripped of its powers to supervise banks, though the House passed legislation last week that would allow the Fed to keep that authority.

Even though Bernanke was late to recognize how deeply the subprime crisis would affect the financial system, he has won me over with his ability to act with aplomb in the middle of the crisis. I'm guessing that he will end up presiding over a Fed that operates relatively unchanged – despite Dodd's and Paul's efforts to the contrary.

Meet Peter Cohan at The World Money Show Orlando, Feb. 3-6, 2010, at The Gaylord Palms Resort.

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