Posted: 5:54 pm Wednesday, April 2nd, 2008
By Jamie Dupree
Federal Reserve Chairman Ben Bernanke will be back before the Congress for a second straight day, as he will join other Bush Administration officials at a Senate hearing that will review the Fed’s recent actions to help keep the investment bank Bear Stearns from collapsing.
On Wednesday, Bernanke made clear to lawmakers that, in a vacuum, he would rather not get the Fed involved in such issues.
“Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, the issues raised here extended well beyond the fate of one company,” said Bernanke.
What the Fed chairman was worried about was a domino effect that a Bear Stearns failure might have had on financial markets and institutions.
“With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence,” Bernanke testified.
While Democrats praised the Fed’s work, they also pressed Bernanke repeatedly over why the Fed has not done much to help out on home foreclosures.
Given the chance to offer his public support for a series of ideas being pushed in Congress by Democrats, Bernanke sidestepped the issue.
One thing he did not avoid taking a position on was the idea of raising taxes right now.
Republicans trumpeted the Bernanke response as solid evidence why raising taxes right now would hurt future economic growth.
“I think new tax increases would reduce disposable income and consumption, and I think that would be a concern,” Bernanke told the Joint Economic Committee.
“A massive tax hike would slow our economy further,” said House GOP Leader Rep. John Boehner (R-OH.)
As for home foreclosures, Democrats and Republicans worked through the day on Wednesday to hammer out a bi partisan Senate deal on a bill, announcing that they had a joint agreement on a framework for the plan.
But the “outlines” of an agreement are much different than hard and fast language for legislation. We’ll see how serious both parties are about this after we get down to the nitty gritty details of this bill in coming days.
What it does demonstrate is that both parties – especially the GOP side – want to be seen as moving forward on home foreclosure legislation.
It’s the economy, stupid.