Several weeks ago, I wrote to my State Senator, Robert Menendez, encouraging him not to vote for the confirmation of Dr. Ben Bernanke. He replied to me. Not being content with Senator Menendez answer, I responded with clarifications on my position. Here is what i wrote to him (please note that as of this writing I have yet to receive any response, albeit it's been a short period of time since i e-mailed my letter.)
Dear Mr. Menendez:
I sincerely appreciate your response to my inquiry regarding your vote on the nomination of Dr. Ben Bernanke. As your constituent, I am compelled to clarify some of your misunderstanding about the real issues pertaining to this matter. Let me preface by saying that I speak as someone who is well versed on this topic: by the mercy and grace of God I have not only a B.A. in Finance and Economics from Rutgers University and a Masters in Economic Policy from Columbia University but also over eight years of working experience on Wall Street.
In the post scriptum you will find your response letter in its entirety. In this section I want to address some of the points (which are in quotation marks) that you mentioned.
Indeed, while you write that, “[b]y law, the Chairman of the Federal Reserve reports twice a year to Congress on its monetary policy objectives,” Congress should require the transcripts of the Federal Open Market Committee within 24-hour after its meeting. Congress already adheres to this standard. Why not the Federal Reserve (FED)?
In light of your commitment to a “strong and fair regulations that spur economic recovery, promote sustainable growth, and protect the financial well-being of all Americans,” you voted in favor of Mr. Bernanke because you “believe that our economy could have sunk even further into a depression if [he] had not responded as forcefully as he did by providing funds at such a pivotal moment.” With all due respect Senator, “could have” does not equate to “would have.” The fact of the matter is that the FED’s intervention in the free-market is the progenitor of economic instability. It is disingenuous to tacitly endorse the commonly accepted idea—albeit erroneous—that a Committee of economists can know what the interest rate the market requires. The free-market allocates capital based on supply and demand. As you know, when the cost of capital declines investment increases. However, when the FED reduces such costs by way of manipulating the interest rate, too much investment takes place—most of it which is misallocated because it is not based on real demand. This explains the reason why private market participants, who maintain their “going concern” due to appropriate forecasting of consumer demand, suddenly miscalculate and must subsequently exit their businesses. In this scenario, bankruptcies and unemployment skyrocket. As you know, this is what exactly has happened. While the relaxation of loan underwriting standards and other imprudent banking practices augmented the crisis, the severity of it could not have happened without the leverage (i.e. excessive printing of money) employed by the FED. The massive and unprecedented intervention during the post-Lehman Brother’s collapse by the FED assures that the next economic crisis will be more severe than the one previously experienced. It is only a matter of time before this happens.
Having said that, I applaud your efforts of being “forceful with Dr. Bernanke, particularly concerning his oversight of the financial markets.” I hope you continue to do so.
Cesar A. Garcia
P.S. Below is your response to me in its entirety.
Dear Mr. Garcia:
Thank you for contacting me to express your opinion on the nomination of Dr. Ben Bernanke for a second term as Chairman of the Federal Reserve. Your opinion is very important to me, and I appreciate the opportunity to respond to you on this critical issue.
As you are well aware, the Federal Reserve is the central banking system of the United States. Among other duties, the Federal Reserve supervises and regulates certain banks, conducts the nation's monetary policy, and provides "lender of last resort" financing to those banks. By law, the Chairman of the Federal Reserve reports twice a year to Congress on its monetary policy objectives.
In August 2009, President Obama nominated Dr. Bernanke for a second four-year term as Chair. As a member of the Senate Banking Committee, it is my responsibility to oversee our nation's financial institutions and vote on nominations. This is a responsibility I take very seriously, especially in light of the economic plight we currently face. I have long been committed to strong and fair regulations that spur economic recovery, promote sustainable growth, and protect the financial well-being of all Americans.
On this, as well as many other issues, there are different viewpoints. I voted for Dr. Bernanke's re-confirmation because I believe that our economy could have sunk even further into a depression if Dr. Bernanke had not responded as forcefully as he did by providing funds at such a pivotal moment. Furthermore, I believe that Dr. Bernanke is more likely to provide continuity and stability as our economy appears to be recovering. However, I also laid out substantial changes I expect to see implemented at the Federal Reserve. I believe the Federal Reserve should have acted earlier to prevent the housing bubble and to stop harmful mortgage practices. I have been, and will continue to be, forceful with Dr. Bernanke, particularly concerning his oversight of the financial markets. In addition, I have long championed greater transparency at the Federal Reserve.
Thank you for sharing your thoughts with me. Please do not hesitate to contact me in the future about this or any other matter of concern. I invite you to visit my website (http://menendez.senate.gov/) to learn more about how I am standing up for the citizens of New Jersey in the United States Senate.