White House Takes Lessons for Yellen From Bernanke's 2010 Close Call

Tuesday, 12 Nov 2013 07:52 AM

 

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As White House, Federal Reserve and Treasury Department staff prepare Janet Yellen to face the U.S. Senate for her nomination as the next Federal Reserve chairman, one experience remains seared in their memories: Ben S. Bernanke’s close call in 2010.

In the final days before the confirmation vote, aides concluded there was a real risk that Bernanke’s renomination would fail. Voter anger and lawmaker distrust stirred by the Fed’s role in bailing out Wall Street banks less than two years earlier combined to nearly sink his bid, which required a last-minute rescue operation that involved the president himself.

That episode helped shape the strategy now guiding the team managing Yellen’s nomination, which has adopted the playbook once reserved for contentious Supreme Court or top-level Cabinet posts, according to a dozen people involved in one or both efforts. No longer seen as a technocrat or oracle, the job of Fed chairman has been pulled into the fray of Washington’s polarized politics.

“People now use the Fed as a scapegoat, as a whipping post to make their points about the financial markets,” said former Senator Judd Gregg, a New Hampshire Republican who supported Bernanke in 2010 and now heads the Securities Industry and Financial Markets Association, Wall Street’s top lobbying group. The notion that a Fed chairman “is viewed as an individual of unique stature in our culture has been undermined.”

‘Murder Boards’

The media and lawmakers are also gearing up for a Supreme Court-style confirmation fight. Television cameras greet Yellen, 67, at the door to each Senate office she visits. Behind the scenes, aides prepared to grill her at practice sessions called “murder boards” to steel her for hostile questions during a confirmation hearing set for Nov. 14.

Senators of both parties are predicting Yellen will have an easier path than Bernanke. Still, officials say the days of Fed governors being approved by wide margins are over, and confirmation can’t be taken for granted. They cite the case of Peter Diamond, a Nobel laureate nominated by President Barack Obama to the Fed board three times who was blocked by Senate Republicans. And Obama’s former top economic adviser, Lawrence Summers, withdrew his name from consideration for the Fed chairman post after Democratic opponents rallied early against him, seeing him as too close to Wall Street.

Spokesmen for the Fed, White House, Banking committee and Treasury Department either declined to comment or didn’t respond to a request for comment.

Courtesy Visits

Yellen’s nomination campaign is being led by Linda Robertson, head of legislative affairs at the central bank, and her team includes Democrats and Republicans with congressional and executive branch experience. On Capitol Hill, Senate Banking Committee Chairman Tim Johnson’s staff is helping guide the effort on the ground with assistance from senior officials in the White House legislative and personnel offices.

Yellen, the Fed vice chairman, is in the middle of a string of meetings with lawmakers from both sides of the aisle. They follow a protocol: The chairman and ranking member of the Banking committee get the first visits, followed by lawmakers who are likely to drive media coverage. Staff often sandwich meetings with opponents between meetings with supporters to dilute any criticism with statements of support, the people said.

Those courtesy visits may be more important than the hearing itself, said Jamie Brown Hantman, a former legislative affairs official for President George W. Bush who helped shepherd the Supreme Court nominations of John Roberts and Samuel Alito.

“You end up using the courtesy visits as a key part of your messaging strategy,” Hantman said.

Democrats, Republicans

Yellen has already met with more than a dozen lawmakers and those sessions have generally been positive, according to one of the people. Democrats, many of whom were publicly pushing her candidacy before the nomination, have lined up behind her in support.

Republicans have criticized Yellen’s views of monetary policy and her votes on the Federal Open Market Committee in favor of the $85 billion a month in bond purchases known as quantitative easing. However, they have not rejected her nomination outright.

Senator Mike Johanns, a Nebraska Republican on the Banking committee, said after his meeting last week that he was likely to support the former University of California at Berkeley professor “unless something were to come up.”

Gregg, 66, who has remained close to the process in his new role through conversations with Fed and congressional officials, said Yellen is “very sensitive” to the pitfalls the central bank faces on Capitol Hill and is “constructively engaging” with senators, even those likely to oppose her.

Less Opposition

Senator David Vitter, a Louisiana Republican and an outspoken critic of the Fed’s post-crisis actions, said in an interview with Bloomberg Television after his visit with Yellen last week that she would “almost certainly” get the 60 votes she needs to clear the Senate. He said he remained undecided.

That is still a shift for Vitter, who tried publicly to block Bernanke’s confirmation in 2010. At the time he was joined by a number of Democrats, who raised questions about the Fed’s bailouts and criticized the central bank’s oversight of many Wall Street firms, like Bank of America Corp. and Citigroup Inc., whose peddling of toxic mortgage-backed securities contributed to the 2008 crisis. Senator Jeff Merkley, of Oregon, led the Democratic opposition.

Caught Unaware

The Obama administration, people involved in the nomination fight said, was caught unaware of the depth of its own party’s ambivalence about Bernanke, 59, who had served as a member of Bush’s economic team and was first nominated to the Fed by the Republican president. That process followed the traditional pattern of the Senate deferring to the president’s choice, and was so non-controversial that the chamber confirmed him by simple voice vote.

Bernanke’s second nomination, coming while the country was still struggling to recover from the 2008 crisis, quickly ran into trouble. One of the lowest points came when staff members learned that Richard Durbin, the No. 2 Democrat and senator from Obama’s home state of Illinois, was taking part in a growing opposition among liberal senators. It took a personal call to Durbin by Obama to change his mind, according to participants in the effort, who spoke on condition of anonymity to discuss details not previously made public.

Bernanke’s hearing before the Senate Banking committee in December 2009 was so tempestuous that the Obama administration and allies on Capitol Hill pushed the vote into January to gain time to counter the opposition.

Whip Calls

There were daily “whip calls” where senior White House aides like Rahm Emanuel, David Axelrod and Jim Messina joined with the Fed’s Robertson and top staff for then-Treasury Secretary Timothy Geithner to count votes and plot strategy, participants recalled.

To turn things around, they decided to target the votes of senior conservative Republicans who had supported the $700 billion Troubled Asset Relief Program bailout despite public anger. That strategy helped secure the support of Senator Tom Coburn of Oklahoma, who telephoned Bernanke at home so he could explain some of the steps the Fed took to aid markets during the crisis. Coburn’s backing gave cover to other Republicans like Arizona’s Jon Kyl and Utah’s Robert Bennett to support Bernanke, the people said.

In the end, the Senate voted 70 to 30 to confirm Bernanke, the most opposition a Fed chief had faced since the chamber began voting on the position in 1978. Still, compared to the dire straits the nominee had faced only days before, the vote represented a big victory for those involved.

Afterward, the Fed’s Robertson sent her drained counterparts at the White House a basket of cookies. Bernanke, writing thank-you notes to his own weary staff, noted that only after a financial crisis would a 70-30 vote be considered a landslide.

© Copyright 2014 Bloomberg News. All rights reserved.

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