Although there are still several months remaining before Federal Reserve Chairman Benjamin Bernanke's term expires, the debate about whether or not President Obama will replace him is already heating up. One Fed insider has stated that "the vultures are circling," though it seems likely that Bernanke will not be replaced next year.
To begin with, there is the fact that Bernanke has done a pretty good job. At a time when pundits and analysts were decrying the end of capitalism and the destruction of the American way of life, his quiet, steady demeanor and talk of "green shoots" established a level of confidence that was sorely needed. When Bernanke said that America's largest banks were not going to fail, investors and taxpayers believed him.
For that matter, the stress tests were another masterstroke. Even in the case of banks that effectively failed their tests, the apparent transparency of the process cleared up a lot of the mystery surrounding the country's financial malaise. Suddenly, a seemingly bottomless disaster appeared to have a bottom, and it was not quite as horrifying as most people had thought.
Even now, for all the "red hot" stock market action that Jim Cramer claims is happening, the financial system is still about as hypersensitive as Emeril Lagasse in a speedo. Replacing Bernanke, particularly when he has transformed into the darling of American business, would be exactly the kind of destabilizing move that Obama is desperately trying to avoid.
That said, the dominant narrative currently being woven is more than a little bizarre. Jim Cramer (and, to a lesser extent, Jack Welch) seem to want to transform Bernanke into a chest-thumping action hero, going head to head against the complacent George Bush and the demonic Barack Obama.
In Cramer's version of the story, Bernanke was initially adrift in Bush land, completely taken in by the president's fuzzy, muzzy faith that the "fundamentals" were "sound." However, when Lehman Brothers collapsed, Bernanke had a St. Paul moment: knocked from his donkey of fiscal complacency, the newly enlightened chairman decided to apply "the lessons he'd learned back at Princeton," and quickly dropped interest rates to zero.
Later, when Obama stated on February 19 that "There will be a time for [CEOs] to make profits and there will be a time for them to get bonuses. Now is not that time," Cramer lost no time in offering forced comparisons to Vladimir Lenin. Before long, he was claiming that this simple line caused a massive Wall Street selloff, suggesting that every true-blue capitalist in lower Manhattan took Obama's speech as a sign that it was time to bail out and move to Aruba.
Once again, Bernanke jumped into the breach, calming Wall Street's emotionally unstable money men and applying the economic equivalent of thorazine to settle the patient down. He then scolded the President for scaring the markets with silly, divisive talk of Wall Street and Main Street.
This narrative misses a key point: describing the dominant societal mood in February as mutinous would be a severe understatement. For every Wall Street wheel decrying the death of capitalism, there were hundreds -- if not thousands -- of middle Americans who were wondering if it was time to start pricing guillotines. Obama's steely outrage and stern pronouncements filled a need that was every bit as important as Bernanke's steady hand.
It's worth remembering that Bernanke took a substantial risk by endorsing Obama's stimulus plan before the Presidential election last fall. Interestingly, the media took that opportunity to claim that Bernanke's support was indefensible and permanently damaged the Fed.
A more likely explanation of the Obama/Bernanke relationship is that the President and the Chairman of the Fed are playing a game of good cop/bad cop. If Wall Street believes that the Fed Chairman is the only thing standing between them and the horrors of a full-blown state-run economy, they will be inclined to give him a level of leeway that would be unimaginable under other circumstances.
Meanwhile, Obama gets to be the good guy on TV, assuring the American people that the evildoers will be punished and the financial system will be reformed. Together, they are able to simultaneously fulfill Wall Street's need for security and middle America's thirst for revenge.