Executive Session

Floor Speech

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Mr. CORNYN. Mr. President, I would like to explain why I will vote against the confirmation of Ben Bernanke for a second term as Chairman of the Federal Reserve. Ben Bernanke is a brilliant and honorable man. He deserves our Nation's thanks for his years of public service--especially during the greatest financial crisis in decades. I agree with Chairman Bernanke's supporters that some of his actions mitigated that crisis--and that we might be in a much worse place today if not for his leadership. Nevertheless, I believe the Federal Reserve needs a fresh start--with a new Chairman--for several important reasons.

First, Chairman Bernanke was a member of the Fed's Board of Governors where he strongly supported Chairman Greenspan's monetary policy that kept interest rates very low. In fact, the Federal funds target rate reached a low of 1 percent by mid-2003. Most economists agree that these low interest rates were one of the factors--certainly not the only factor--that contributed to the housing price bubble that expanded for much of the previous decade. And when the housing bubble burst, our global financial crisis began. This isn't ancient history. Earlier this month, Chairman Bernanke delivered a remarkable speech to the American Economic Association in Atlanta. In that speech he defended the Fed's actions before the crisis--and largely absolved himself of any responsibility for it. Now I am willing to support a person who makes tough decisions--and learns from them when things don't go well. But under Chairman Bernanke, the Federal Reserve missed the signals that the economy was in trouble--such as the housing bubble, and unsettled credit markets. The Fed missed the chance to take action sooner--action that might have prevented the necessity of its massive intervention later on. And today, Chairman Bernanke still does not recognize the missed opportunities that occurred on his watch.

Second, Chairman Bernanke played a role in the passage of the Troubled Asset Relief Program--or TARP. It is important to remember what Chairman Bernanke and Treasury Secretary Hank Paulson were telling us before we all voted on TARP in October 2008. In public, their testimony was alarming. On September 23, 2008, Secretary Paulson said that Congress must act ``in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten ..... the very health of our economy.'' Chairman Bernanke was one of those who told us--in effect--that we were perhaps days away from a complete meltdown of our financial system. So a lot of us did our patriotic duty. We trusted the experts and we authorized the TARP program. And almost immediately after we did so, the Treasury changed what they said they were going to do with the money. Only weeks after TARP was enacted, the Bush administration abandoned the goal of purchasing ``toxic assets.'' Instead, they funneled billions of taxpayer dollars directly to many of the Nation's largest financial institutions. Soon the Federal Government was acquiring ownership stakes in banks, financial institutions and automakers--with the full support of the incoming Obama administration. In fact, the Obama administration has gone even further, using its TARP leverage to set executive pay at several companies. And during the reorganization of General Motors, the Obama administration used its leverage to benefit its union allies--over the rights of secured bondholders who had loaned their savings to the company. TARP may have also enabled public corruption and criminal activity. According to the latest report from TARP's inspector general Neil Barofsky, there are 54 ongoing criminal and civil investigations into TARP related activities. These activities include: ``complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations.'' President Obama and the Senate leadership have resisted our attempts to end the TARP program. Last week, 45 Democrats voted down Senator Thune's amendment which needed a 60-vote threshold to end the TARP program. And last night, President Obama proposed using TARP to fund his new stimulus bill--in order to get around his own 3-year spending freeze. By the way, using TARP on new spending would also break the promise that the President made when he voted for TARP in this very Chamber. Then-Senator Obama said:

[I]f American taxpayers are financing this solution, then they have to be treated like investors. They should get every penny of their tax dollars back once the economy recovers.

Mr. President, TARP is a government credit card that should be cancelled. And Chairman Bernanke was one of the key enablers that led to its creation in the first place.

Third, I believe we need a Fed Chairman who demonstrates a greater commitment to transparency. The Federal Reserve has been very resistant to giving the Government Accountability Office, GAO, independent audit authority. In fact, the GAO told the Senate Finance Committee last year that the Federal Reserve was resisting its investigation efforts in reviewing the response to the financial crisis by claiming that it would impair the independent nature of monetary policy. I agree that politics should not be involved in monetary policy. Yet since the beginning of the financial crisis, the Federal Reserve has routinely exercised unprecedented, emergency powers that resulted in a $3.4 trillion expansion of its balance sheet according to some estimates. This is risk that will be borne by the American taxpayer and they deserve to know what their government is doing. Another example of the Federal Reserve resisting transparency surrounds the assistance provided to AIG. The Federal Reserve initially refused to disclose the identity of the banks to whom AIG paid out the vast majority of its Federal assistance. They even opposed AIG disclosing details of its transactions in public filings required by the Securities and Exchange Commission. The Federal Reserve argued that disclosing the identity of these counterparties who engaged in exotic, risky transactions with AIG would destabilize AIG, would harm the counterparties, and could destabilize the market as a whole. However, following significant public and congressional pressure, the identities of the counterparties were finally released and the market moved forward. The inspector general for TARP is now investigating into whether there was misconduct at the Federal Reserve in regard to its role in the failure of AIG to disclose billions of dollars in counterparty payments to the SEC last year. And just yesterday at a hearing by the House Committee on Oversight and Government Reform, the TARP inspector general announced that additional documents and facts have come to light that have caused them to initiate an investigation to review the extent of the Federal Reserve's cooperation during the course of its audit of the AIG counterparty payments. Clearly, the Fed needs more transparency, not less. That is why I am a cosponsor of the Federal Reserve Sunshine Act of 2009. This bill would require the GAO to conduct a comprehensive audit of the Federal Reserve System and its banks and report back to Congress by the end of 2010. But in addition to an audit, the Fed clearly needs a new Chairman--one more clearly committed to transparency and accountability.

Supporters of Mr. Bernanke argue that to vote against him will politicize the Federal Reserve. I could not disagree more. An up-or-down vote is part of our responsibility as Senators to provide our advice and consent. Some supporters also argue that we could wind up with someone worse than Mr. Bernanke--and that any transition would unsettle financial markets. On this point, I would contend that the current uncertainty job-creators face today is due to the policies being pushed by this administration; this is the main obstacle to building confidence and growing jobs for Americans. But again, the Senate will have the opportunity to provide its advice and consent to any future nominee. And if Chairman Bernanke's term expires, Vice Chairman Donald Kohn would immediately assume his duties. And Mr. Bernanke would still remain on the Fed's Board of Governors. So the supposed ``transaction costs'' of voting down this nomination are overstated, in my opinion. The simple truth is: No one person is indispensible in any public office. I believe the American people and our financial system will be better served by new leadership at the Fed. And therefore I will vote against this nomination.

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