After a year of crisis, Fed chairman's star is rising

Last year, as the gravest financial crisis since the Great Depression shook the banking system, Ben Bernanke seemed nearly as beleaguered as the institutions themselves.

The Federal Reserve chief had initially underestimated the crisis — and then seemed to inject new risk by unleashing breathtaking sums of money to fight it. Now, a strengthening economy is raising Bernanke's standing just as President Barack Obama must decide whether to reappoint him.

His supporters say Bernanke, 55, a scholar of the Great Depression, has the knowledge and ability to guide a sustainable recovery without igniting inflation. And they argue that without his bold interventions, the global financial crisis could have been much worse.

"He has risen to the occasion admirably after what you might argue was a slow start," says Alan Blinder, a Princeton professor who was Fed vice chairman in the mid-1990s. "His performance merits reappointment."

Bernanke, having just wrapped up the Fed's annual conference in Jackson Hole, Wyo., remains under pressure to help speed a recovery. Joblessness, now at 9.4 percent, is expected to hit double digits this year. Yet his riskiest task is to decide when and how to unwind the Fed's emergency-rescue programs without endangering the economy.

His critics see failures in Bernanke's performance. They say he overplayed his hand by swelling the Fed's balance sheet to nearly $2 trillion, a once-unthinkable threshold.

They argue that the success of the emergency-rescue programs has been inconsistent. And they blame Bernanke for politicizing the Fed: They point, for example, to his role in deciding which banks would benefit from taxpayer-funded bailouts and which would not. "His handling of the crisis has put the Fed in an awkward political position," says William Poole, former president of the Federal Reserve Bank of St. Louis, who doesn't think Bernanke should be reappointed.

Other decisions, too, should have been left to Congress, says Poole, who retired in 2008 after 10 years at the regional Fed bank.

For now, Bernanke benefits from the role of incumbent. He has taken the unusual step for a Fed chief of fielding questions in a PBS town-hall style meeting and on CBS' "60 Minutes."

To prevent another crisis, Bernanke has said Congress should create a way to safely wind down a big financial institution. And he thinks "too big to fail" institutions should be subject to stricter regulation. Bernanke contends that when the crisis erupted, he couldn't play cautiously, regardless of criticism. Instead, he swung for the fences.

As he put it last month, "I was not going to be the Federal Reserve chairman who presided over the second Great Depression."

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