Crisis illustrates power of the unelected

Tom Curry National affairs writer • Profile • E-mail

WASHINGTON - Step aside Clinton, Obama, and McCain. Make way for Bernanke, Paulson, and Geithner.

In an election year in which the public and the news media have been focused on the presidential contenders, the crisis playing out in the financial markets is a reminder that for the time being, the most consequential decision-makers are unelected officials.

Despite the hoopla about the November election, the next president’s limited options will be determined largely by three unelected men: Federal Reserve Board chairman Ben Bernanke, Treasury Secretary Henry Paulson, and Timothy Geithner.

Not a household name, Geithner is a central player in this drama in his role as president of the Federal Reserve Bank of New York, the clearinghouse for the investment houses and banks that lubricate the economy.

Presidential contenders Hillary Clinton, John McCain, and Barack Obama can’t make you any richer or poorer, at least not yet. But Bernanke, Paulson, and Geithner can by the decisions they make in the next several weeks.

For richer or for poorer?
If they succeed in stabilizing the financial markets, then your 401-k and paycheck may be more secure; if not, then you could find yourself poorer by the time the new president takes the oath of office.

Bernanke, by the way, serves a 14-year term as a Federal Reserve Board governor and a four-year term as Fed chairman, so he’ll likely be around next year no matter who the new president is.

Despite the partisan divide, the running of the U.S. financial system is bipartisan in its staffing. Geithner served in the Clinton administration’s Treasury Department under secretaries Robert Rubin and Larry Summers. And he got his job with support from former Nixon administration Commerce Secretary Peter Peterson and the eminent Wall Street veteran John Whitehead, who served in the Reagan administration.

Video Paulson discusses the economy March 18: Can America turn things around? Treasury Secretary Henry Paulson talks with TODAY's Matt Lauer about the state of the economy. Today show

Paulson, while head of Goldman Sachs, gave campaign contributions both to Democrats such as Bill Bradley, and to Republicans such as George W. Bush.

The major presidential contenders themselves were notably wary and even bland Monday in their written statements on the turmoil in the markets.

Obama and Clinton were sticking to the relatively familiar territory of urging President Bush to help prevent more home foreclosures, but neither one addressed the bigger issue of systemic risk to the entire financial system.

Dollar dwindling in value
Also absent from their statements: a concern about the effects on consumers of a dollar that is dwindling in value (more costly food and fuel), and whether the Federal Reserve’s actions will further weaken the dollar.

McCain said through his economic adviser Doug Holtz-Eakin that he had “complete confidence in Chairman Bernanke and the actions of the Federal Reserve…. John McCain understands the federal government’s responsibility to ensure the stability of the U.S. financial system….”

Obama’s statement predicted that “Many other steps will be required to reverse this downturn in the weeks to come.” But he didn’t specify what those steps might be.

Neither Clinton nor Obama said they approved of what Bernanke did — in effect, bailing out Bear Stearns indirectly through JPMorgan Chase — but neither did they say they disapproved of it.

It’s worth noting that if economic expertise or, at least, experience with legislating on financial matters is now a more valued commodity in the next president, none of the major contenders serves on the committees with jurisdiction over Bernanke: Banking and Finance.

Paul denounces 'bailout'
One presidential contender who does serve on the House Financial Services Committee and regularly gets to grill Bernanke, is out of the running and out of the mainstream: Rep. Ron Paul, R-Texas.

Video Clinton on the economy March 17: Presidential hopeful Hillary Clinton is asked what she would have done differently in order to avoid problems like the collapse of Bear Stearns. NBC News Web Extra

The Texan warned last month that “if the federal government bails out banks, investors, or homeowners, the lessons of sound investment and fiscal discipline will not take hold….” He complained that “the Fed never allows a complete shakeout, so that before a return to a sound market can occur, the Fed has already bailed out numerous market participants by undertaking another bout of loose money ….”

Clinton supporter Sen. Charles Schumer, D-N.Y., who does serve on both the Banking and Finance committees, was more forthright than Obama or Clinton in a CNBC interview Monday morning.

“What’s just as important as standing behind Bear Stearns is the idea that they will stand behind other institutions,” Schumer said. “What we’re in here is the closest thing we’ve seen to a bank panic since the Depression.” He said the Fed would “run the risk of a full-fledged panic” if it let Bear Stearns go bankrupt. 

Banking Committee chairman Sen. Chris Dodd, D-Conn., praised Bernanke in a conference call with reporters Monday afternoon. “I’m grateful we have a chairman of the Federal Reserve who’s exercising his power and authority to step up and move aggressively.”

He said, “I hope it’s not too late, I believe it’s not,” adding that “there’s no reason to be racing for the exits here. This problem, I think, is going to get contained” by the decisions made by the Fed.

Dodd and Schumer, as well as Clinton and Obama, have sharply criticized Bush for not acting sooner to assist Americans who, having bought a house in the past few years, now find they can't meet their monthly mortgage payments.

Dodd urged Bush to support his plan to refinance some home mortgages at a discount through the Federal Housing Administration. "I think there's a greater receptivity to this idea" among Bush administration officials "than there was 48 hours ago," Dodd told reporters Monday.

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