Hero or Villain? Lawmakers Scrutinize Ben Bernanke's Record

Dec. 3, 2009— -- Federal Reserve Chairman Ben Bernanke today defended his record as chief of the central bank during the country's worst economic downturn in generations, but some members of Congress responded to his quest for a second term with opposition and skepticism.

"We did not – certainly not do a perfect job by any means," Bernanke said at a reconfirmation hearing before the Senate Banking Committee. "But I don't think we stand out as having done a worse job than other regulators."

While the majority of lawmakers on the panel expressed support for the Fed chief, others tore into the central bank boss, blasting him for failing to prevent the current crisis and then rescuing Wall Street but not Main Street.

"Your time as Fed chairman has been a failure," Sen. Jim Bunning, R-Ky., told Bernanke, adding, "I will do everything I can to stop your nomination."

Dubbing Bernanke "the definition of a moral hazard," Bunning noted, "Under your watch every one of the major banks failed or would have failed had you not bailed them out."

"The AIG bailout alone is reason enough to send you back to Princeton," Bunning added. (Bernanke was chairman of the economics department at Princeton University prior to being appointed Fed chief by President George W. Bush.)

Despite Bunning's harsh words, Bernanke received backing from the panel's chairman, Sen. Christopher Dodd, D-Conn. "I believe you've done a very good job in helping us avoid the kind of catastrophe that could have occurred in this country," Dodd said.

"You and the Federal Reserve deserve, in my view, praise for your acumen and gratitude for the role in preserving a far worse outcome than we might have otherwise seen and I believe that you deserve another term as chairman of the Federal Reserve."

But the Connecticut lawmaker also cited a litany of mistakes made by the central bank in the run-up to the recession, from lapses in consumer protection to lackadaisical oversight of Wall Street risk-taking.

"The lesson, I believe, we can learn from these mistakes is that the country is best served by a strong, focused central bank, not one that is saddled with too many diverse missions and competing responsibilities," said Dodd, who has unveiled legislation to strip the Fed of some of its powers.

Echoing Dodd's critique today was the panel's ranking Republican Sen. Richard Shelby of Alabama.

"The Fed has done a horrible job as a regulator," Shelby said.

On Wednesday night liberal independent Senator Bernie Sanders of Vermont placed a hold on Bernanke's nomination to serve a second term.

"The American people want a new direction on Wall Street and at the Fed," Sanders said. "They do not want as chairman someone who has been part of the problem and who has been responsible for many of the enormous difficulties that we are now experiencing. It's time for a change at the Fed."

Sanders noted that since Bernanke took over at the central bank in 2006, unemployment has more than doubled and today 17.5 percent of the country's workforce is unemployed or underemployed.

"The American people overwhelmingly voted last year for a change in our national priorities to put the interests of ordinary people ahead of the greed of Wall Street and the wealthy few," Sanders said. "What the American people did not bargain for was another four years for one of the key architects of the Bush economy."

Sanders is not alone in denouncing the Fed chief's performance. The Progressive Change Campaign Committee, a liberal group, has launched a petition targeting "Bailout Ben."

"Americans deserve to know what the Federal Reserve does with our money," says the petition. "The Senate should vote no on Ben Bernanke if he says no to accountability."

Even if the debate over whether to grant Bernanke a second term proves to be as contentious as the final year of his first term has been controversial, Bernanke does appear likely to win Senate approval. His backers argue that the Fed chief played a pivotal role in averting a far more serious crisis.

When President Obama nominated Bernanke in late August to a second term, he said, "Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and outside-the-box thinking that has helped put the brakes on our economic free fall.

"As an expert on the causes of the Great Depression," Obama said, "I'm sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage and his creativity, that's exactly what he has helped to achieve."

It is precisely because Bernanke staved off a second Great Depression that Foreign Policy magazine last week named Bernanke the top global thinker of 2009.

'Massive' Intervention in Financial Markets

"The Zen-like chairman of the U.S. Federal Reserve might not have topped the list solely for turning his superb academic career into a blueprint for action, for single-handedly reinventing the role of a central bank, or for preventing the collapse of the U.S. economy," the magazine said in explaining Bernanke's selection. "But to have done all of these within the span of a few months is certainly one of the greatest intellectual feats of recent years."

His "key insight," said the magazine, was "the need for massive, damn-the-torpedoes intervention in financial markets."

Jim Angel, a finance professor at Georgetown's McDonough School of Business, told ABC News, "You can quibble with a lot of [the Fed's] actions and say they did or they didn't do the right thing at the right time and you can debate whether a mistake with Bear Stearns and Lehman, on the whole, I think most people thought Bernanke did a decent job."

"There is normal showmanship of getting voters in Peoria, you show the people you are unhappy with what happened last year by dragging the decision makers over the coals."

Hal Scott, a Harvard Law School professor who studies financial regulation, told ABC News the Fed did great in the crisis. "They were for months, even more than a year, the only effective agency trying to deal with it until the TARP came along. They were the first line of defense."

But when the politicians began looking for people to blame, " they are not going to point to themselves on TARP. Who are they going to point to, the Fed? It is the political whipping boy," he said.

ABC News' Charles Herman contributed to this report.