The Irish Independent reports that the €3.8m 'golden handshake' paid to former FAS director general Rody Molloy will cost taxpayers almost €900,000 more than it should, a damning new report reveals.
The State's spending watchdog found Mr Molloy's pay-off deal was far in excess of what any comparable public servant taking early retirement would have received.
The finding is contained in a highly critical report on internal controls and corporate governance at the State training agency.
The report sheds further light on the culture of excess and lax financial controls that existed at FAS over the past decade.
It will fuel public anger at the generous severance deal sanctioned by Tanaiste Mary Coughlan and Finance Minister Brian Lenihan to secure Mr Molloy's resignation.
Comptroller & Auditor General (C&AG) John Buckley called for a major overhaul of risk management procedures to ensure taxpayers got better value for money.
His report said the board of FAS approved Mr Molloy's controversial severance package, negotiated with officials from the Department of Enterprise, on November 25, 2008.
The enhanced deal included a superannuation gratuity of €333,735, payment in lieu of notice of €55,622, an ex-gratia payment for the same amount, and the ownership of a company car worth €20,800. Mr Molloy will also get an annual pension of €111,245.
The entire package will be worth €3.8m to Mr Molloy over the next 30 years.
Mr Buckley was critical of the deal, saying a comparable public servant retiring with the same level of service as Mr Molloy would get €892,269 less over the 30-year period.
If a comparable public servant had been sacked they would have got €76,422 less than Mr Molloy is to receive, Mr Buckley said.
The report also revealed how up to six top executives at FAS were paid bigger bonuses than they were entitled to in 2008.
Bonuses worth 11.5pc of salary were paid to assistant director generals in breach of Department of Finance guidelines, which cap the payments at 10pc of salary. The inflated bonuses were approved by Mr Molloy. Despite the breach of guidelines, they were also sanctioned by the departments of Enterprise and Finance.
FAS said last night the increased bonuses were awarded in error. It said the assistant director generals had not been asked to pay back the extra money. A spokeswoman for the Department of Enterprise declined to comment.
Mr Molloy also refused to comment on the findings when contacted at his home last night.
The report found FAS spent €200,000 on flights for people not working for the agency, who accompanied officials as part of the now abandoned Science Challenge Programme. Mr Molloy took 28 foreign trips with flights costing €93,000 -- an average of €3,320 per trip.
Around €32,000 was charged to FAS for the travel costs of spouses of senior management. Mr Molloy's wife accompanied him on eight occasions, at a cost of €21,000. None of these costs were reimbursed.
A further €11,200 was spent on flights for the wife of an assistant director general. Just €200 from the costs of those flights was reimbursed to FAS.
Mr Buckley also found questionable expenditure on golfing events, sporting events and concerts -- the majority approved by Mr Molloy.
Explanation
When he wrote to Mr Molloy seeking an explanation for the spending, he got no response.
The report found leading executives were aware of overspending in some areas, but this information was not given to the FAS board.
It also highlighted areas where other procedures were flouted. Of €3m worth of flights paid for by FAS between 2002 and 2008, almost €1m was spent without using the agency's approved travel agent.
Executives approved spending on a number of projects even though they did not have the authority to so, and many payments were made without supporting documentation.
The C&AG also found there were no policies governing the authorisation and use of FAS credit cards and that payments were made before supporting documentation was supplied.
In a statement, Ms Coughlan said the failure of FAS to implement internal controls was the "key failure" identified by the C&AG, adding that she had received assurances from FAS that these controls were now being fully complied with.
The Irish Independent also reports that a large gap has started to open up in the credit worthiness of AIB and Bank of Ireland as perceived by the markets. It follows this week's downgrading of both banks by the ratings agency Standard & Poor's.
The gap is appearing in the credit default swap market, where a form of bond insurance is traded. This week the swaps on AIB's subordinated debt shot up to 607 basis points, whereas BoI was lower at 532 basis points. This is the largest gap between the two banks for several months.
The market is now starting to grow concerned about the kind of changes the EU Commission might impose on both banks. Among them is a concern that bond holders, who own the subordinated debt, may be forced to share in the losses caused by property lending.
Liquidation
Subordinated debt ranks lower than senior debt in the event of liquidation and holders of these securities are often forced to take 'haircuts' on their loans during debt restructurings.
The gap between Ireland's two largest banks is less noticeable in relation to ordinary senior debt, which is also covered by credit default swaps. Last week swaps for AIB were trading at 233 basis points, while BoI was at 220 basis points.
Analysts fear the Irish banks have become overly dependent on short-term borrowing which is guaranteed by the taxpayer.
As debt matures, the banks will be forced to renew loans. That could turn out to be much more expensive for Irish banks than for foreign rivals.
Analysts at Barclays Capital yesterday calculated that if BoI replaced its current funding with long-term unsecured debt the extra costs would wipe out its expected 2012 profits.
Germany's Commerzbank would only lose 20pc of profits while Switzerland's UBS could secure long-term funding by giving up just 5pc of expected profits.
The Irish Times reports that the prospect of extraordinary European support for Greece remained alive yesterday despite Germany and France denying they were working on a rescue plan. High-level officials made it clear that the country would not be abandoned.
The European authorities remain convinced that a resolution of Greece’s fiscal problems lies within the union’s capacity and see no prospect of International Monetary Fund intervention in the country.
The big fear is that Greece’s problems could have a contagion effect on other debt-dependent euro members, Ireland among them, overwhelming the currency.
German economy minister Rainer Bruederle said yesterday a number of countries in the euro are exhibiting “dangerous” weakness. “This may have fatal effects on all states in the euro zone,” he said in a speech to the Bundestag lower house of parliament.
EU law, however, prohibits the granting of overdraft facilities for a member state from the European Central Bank.
However, a separate clause in the European treaties that allows the European Commission to grant under certain conditions EU financial assistance to a member state facing difficulties or “seriously threatened with severe difficulties” by exceptional occurrences beyond its control.
The exact form that such assistance may take remains unclear and is unlikely to be made public in advance of any intervention for fear of raising “moral hazard” issues for Greece, rewarding bad behaviour, and easing pressure on Athens to put its house in order with radical corrective action.
In a system struggling under the weight of rampant corruption and unreliable statistics, Greek premier George Papandreou is attempting to steer through a swingeing austerity programme.
The commission will hand down its judgment on that programme next Wednesday, setting a new deadline for the country to bring its budget deficit within the EU limit of 3 per cent. “The best way now to help Greece is in fact for Greece to respect the obligations Greece has under the stability and growth pact,” European Commission chief José Manuel Barroso told reporters. He added, however, that it was “quite clear that economic policies are not just a matter of national concern but European concern.”
Mr Papandreou said his administration has not asked any country for a bailout as its battles financial speculators. He was speaking as Greece again came under pressure in the financial markets.
Germany and France each denied a report in Le Monde, the French daily paper, which said they were discreetly discussing how they might provide assistance to Greece. The commission declined to comment on what it described as “speculative” articles.
The official spokeswoman for Joaquin Almunía, the outgoing economic and monetary affairs commissioner, said that other countries “with determination and political will” had demonstrated that they can surmount their fiscal problems.
The Irish Times also reports that software firm Cognotec has gone into receivership after almost 20 years in business.
Kieran Wallace of KPMG in Dublin was appointed as receiver this week on foot of an application from Barclays, which is owed some $9 million (€6.5 million).
It is thought Cognotec, which provides software for the foreign exchange market, suffered substantially in the banking downturn and struggled to generate sufficient cash to service its debts.
The Barclays loan that led to receivership was advanced in 2006 and at that time amounted to $12.5 million.
Cognotec employs 65 people, 45 of them in Dublin. The firm also has offices in London, New York, Singapore and Tokyo. Mr Wallace will attempt to sell the group as a going concern.
Cognotec was established in 1991 by Dublin-born entrepreneur Brian Maccaba, who is now based in London. The firm flourished as the internet boom took hold, winning some $60 million in venture capital funding. Flotation plans were put on hold after the economic downturn in 2001.
The most recent accounts to be filed for the company, for the year to the end of November 2007, highlight the cancellation of a project which provided 60 per cent of Cognotec’s revenue. The directors said they continued to develop the project in question because it was of “such strategic importance” and, as a result, breached the firm’s banking covenants. The project had since, they said, attracted “multiple clients”, while discussions with bankers and new potential equity investors were ongoing at the end of December. At that stage, the directors said they believed that “adequate funding” would be available.
A report from the company’s auditors attached to the accounts expressed uncertainty about whether or not the numbers offered a true picture of Cognotec’s business.
The accounts showed revenues almost halved between 2006 and 2007, standing at $12.2 million at the end of November that year. Pretax losses were cut from $11 million to $4 million, while shareholders’ funds were in deficit by $12.2 million.
The firm targeted costs during the year, spending almost $800,000 on redundancies.
At its peak, Cognotec employed 150 people, with some staff with the company since its foundation. Its largest shareholder is Mr Maccaba, who attracted considerable attention in 2004 when he took a high-profile slander action in Britain against a senior rabbi.
Mr Maccaba alleged the rabbi had spread sexual slurs about him but the businessman, who had converted to Judaism, lost the case, incurring an estimated £2 million in costs.
Calls to Cognotec’s offices in Dublin and London went unanswered yesterday.
The Irish Examiner reports that cross-border shopping cost the Irish exchequer €810 million last year, equal to 3.5% of the retail market.
Shopping in the North was up 25% last year compared with 2008 with a quarter of a million households in the Republic now doing their grocery shopping in locations such as Newry and Belfast.
In a further blow to the Irish economy, 10% of the Republic’s off-licence business migrated to the North last year.
This is according to the latest consumer survey covering the last three months of 2009 from UCD Smurfit School and the Marketing Institute of Ireland.
The monitor shows the level of confidence in December last year was 6% better than a year earlier. The average level of confidence for the year as a whole was 4% better than 2008.
Professor of marketing at Smurfit, Mary Lambkin said: "This mass exodus [North] reflects a more consumer savvy population and the need for retailers in the Republic to compete with rock bottom prices on offer just over the border."
The findings show 55% of consumers are now buying less, 65% are hunting more for value and one in three are trading down or buying cheaper products.
Final retail sales figures are not yet available but the report predicts a 10% fall in consumer spending for 2009 due to a fall in disposable income, a rise in personal savings from a low of 3% of disposable income in 2007 to a high of 11% in 2009 and depreciation of sterling.
All sectors were hit by falling sales with motor trade and household equipment particularly affected.
The motor trade’s downward trend accelerated to a record low in 2009, last seen in 1987, with total private car sales falling 50%. By comparison, new car sales were down 19% in the US, 6.4% in Britain and just 1.6% across Europe.
Other sectors hit in the 12-month period ending November last year were department stores (22%), clothing, footwear and textiles (15%), books and newspapers (16%), bars (13%), food (8%) and pharmaceuticals, medical and cosmetics (6%).
On average, the price per transaction shows women spent €80.55 in Q4 2008 compared to €50.01 in 2009, a 38% reduction.
Chief executive of the Marketing Institute, Tom Trainor said: "A positive from the Q4 report is that retailers perceive that the rate of decline is slowing and that there could potentially be a return to growth by Q3 2010."
Meanwhile the latest AIB/Amárach recovery indicator experienced its strongest monthly surge in January, reflecting a changing national "mood" and a possible "seasonal boost".
The index rose from 18.3 in December to 27.1 in January with one third of all Irish adults saying "the economic situation is bad but has stabilised".
The Financial Times reports that the European Union made clear on Thursday it would not abandon Greece and let Athens’ mounting debt crisis jeopardise the eurozone, even as Germany and France played down suggestions they had already formulated anemergency rescue plan.
“It’s quite clear that economic policies are not just a matter of national concern but European concern,” José Manuel Barroso, European Commission president, told reporters in Brussels.
According to high-level EU officials, Greece would in the last resort receive emergency support in an operation involving eurozone governments and the Commission but not the International Monetary Fund.
Eurozone countries and EU authorities are reluctant to spell out how they would assist Greece, for fear that it would relax pressure on Athens to attack its problems and unsettle rattled financial markets.
The immediate priority is for Athens to demonstrate that it is serious about cutting public expenditure, improving tax collection, publishing reliable financial statistics and tackling corruption, the officials said.
“Greece has to sort this out itself. That is the issue,” a French official said.
Mr Barroso said “the best way to help Greece is for Greece to respect its obligations under the stability and growth pact”, a reference to the EU’s fiscal rules.
His message was echoed by José Luis Rodríguez Zapatero, Spain’s prime minister, who said: “The euro club is a strong club with strong ties and reciprocal support. Let no one be mistaken about that.”
They were speaking as anxiety over Greece rose in financial markets, driving Greek bond yields up to 7.25 per cent, closing on Hungary, a non-eurozone state bailed out by the EU and the IMF in 2008.
Greek yields have risen by more than one percentage point this week and by three percentage points since October.
George Papandreou, Greece’s prime minister, blamed “malicious forces” for stories about Athens seeking funds from China and elsewhere, which helped trigger the turmoil. He said Greece had proved its ability to raise funds with a €8bn bond issue on Monday which was heavily oversubscribed.
But some investors warned they might shun Greek debt, accusing Greek ministers and bankers of mishandling the bond issue, which left some funds nursing heavy losses.
Signs of trouble in other eurozone countries persisted as Portuguese government bond yields hit a six-month high after ratings agencies gave a lukewarm response to the government’s deficit-cutting plans. The euro touched a fresh six-month low of less than $1.40 and hit a five-month trough against sterling
The FT also reports that Portugal’s finance minister on Thursday condemned international credit rating agencies for damaging his country’s economy by making mistaken risk assessments.
The attack came as yields on Portuguese government bonds rose to a six-month high on the back of a lukewarm response by rating agencies to the Lisbon government’s budget proposals for cutting a record deficit.
“Many of the problems we face are related to errors in risk evaluation that have been made, in part, by the rating agencies,” said Fernando Teixeira dos Santos.
The agencies, the minister added, needed “to show moderation”.
“We cannot be subject to the commercial strategies [of rating agencies] whose objective may be to increase their market share,” he said.
It was “paradoxical”, he added, that rating agencies had appealed to governments to support economies at the height of the global crisis, but were now insisting that states rapidly consolidate their deficits.
In recent months, three credit rating agencies have warned that Portugal faces a downgrading of its sovereign debt rating if it fails to take meaningful steps to consolidate its budget deficit, which rose to a record 9.3 per cent of gross domestic product in 2009.
Portugal’s long-term debt rating currently ranges from Aa2 at Moody’s to A+ at Standard & Poor’s.
Following the unveiling of the government budget proposals on Tuesday, José Sócrates, Portugal’s Socialist prime minister, pledged to cut the deficit by 1 percentage point this year to 8.3 per cent of GDP and to below 3 per cent of GDP by 2013.
Anthony Thomas, a senior analyst with Moody's sovereign risk, said on Thursday that "more ambitious cuts will be needed in 2011-2013 if the government is to reduce the deficit to 3 per cent in line with its commitment to the European Commission".
Yields on Portugal’s 10-year govt. bonds increased 7 basis points on Thursday to 4.292%, the highest level since July. The spread on the bonds is now 110bp above equivalent German bonds, having doubled over the past two months.
The New York Times reports that the White House on Thursday signaled the outlines of its strategy for breaking the partisan logjam holding up President Obama’s agenda, saying Democrats would move quickly to underline their commitment to fixing the broken economy and to build an election-year case against Republicans if they do not cooperate.
With Mr. Obama’s health care overhaul stalled on Capitol Hill, Rahm Emanuel, the White House chief of staff, said in an interview that Democrats would try to act first on job creation, reducing the deficit and imposing tighter regulation on banks before returning to the health measure, the president’s top priority from last year.
But Mr. Obama quickly got a taste of how difficult it would be to bring the opposition party on board.
One day after the president upbraided Congress in his State of the Union address for excessive partisanship, Senate Republicans voted en masse against a plan to require that new spending not add to the deficit (it passed anyway as all 60 members of the Democratic caucus hung together). And some Republicans peremptorily dismissed Mr. Obama’s main job-creating proposal, expressing no interest in using $30 billion in bank bailout money for business tax credits.
“I think there is a right way and a wrong way to do it, and that is not the right way,” said Senator John Cornyn, the Texas Republican heading the effort to elect more Republicans to the Senate.
On Friday, Mr. Obama will travel to Baltimore to announce specifics of his jobs plan, including a proposed $5,000 tax credit for small businesses for each new employee they hire in 2010. While there, he will address House Republicans at a retreat they are holding.
The instant Republican resistance to the jobs plan — coupled with a vote this week to kill a deficit-reduction panel that had been initiated with high bipartisan hopes — illustrated the chasm between the two parties and the difficulties Mr. Obama faces if he is serious about trying to work with an energized opposition.
Increasingly confident of their prospects after the Massachusetts Senate victory, Republicans are disinclined to give ground in policy debates and appear willing to stick with their near-unanimous opposition to major initiatives unless Democrats offer significant concessions.
“House Republicans will seize the opportunity in respectful terms, but candid and frank terms, and make it clear to the president that we have better solutions,” said Representative Mike Pence of Indiana, the chairman of the House Republican Conference.
The administration showed no signs of capitulating either, with officials saying the White House will pursue a strategy of trying to shame Republicans whenever they stand in lock-step against Mr. Obama. In an interview Thursday, Mr. Emanuel warned that Republicans would suffer politically for their opposition to the pay-as-you-go plan.
“One party was for fiscal discipline, the other party wasn’t,” he said, previewing a message that Democrats could use in this year’s midterm elections.
Officials said they were pressing ahead with one of the more controversial items Mr. Obama laid out Wednesday night: repealing the policy barring gay men and lesbians from serving openly in the military.
Senior Pentagon officials said Defense Secretary Robert M. Gates and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, had been in close discussions with Mr. Obama on the issue and would present the Pentagon’s initial plans for carrying out the new policy at a hearing before the Senate Armed Services Committee on Tuesday.
Changing the policy requires an act of Congress, and the officials signaled that Mr. Gates would go slowly, and that repeal of the ban was not imminent. And it could be a hard sell for the president, even among Democrats; Representative Ike Skelton of Missouri, chairman of the House Armed Services Committee, on Thursday restated his opposition to repealing the ban.
Mr. Emanuel, the chief of staff, said he hoped Congressional Democrats would take up the jobs bill next week. Then, in his view, Congress would move to the president’s plan to impose a fee on banks to help offset losses to the Troubled Asset Relief Program, the fund used to bail out banks and automakers.
Lawmakers would next deal with a financial regulatory overhaul, and then pick up where they left off on health care. “All these things start and lead to one place: J-O-B-S,” Mr. Emanuel said.
The execution, of course, will be much easier said than done. Democrats are about to lose their 60-vote supermajority in the Senate, after the recent Republican victory by Scott Brown in a special election to fill the seat held by the late Edward M. Kennedy of Massachusetts. In the Senate, Republicans have come under intense pressure from their colleagues to stay in the fold.
Even some of Mr. Obama’s allies said that given united Republican opposition, the goal of more cooperation might be out of reach. “In order to dance, you need a dance partner and there ain’t no partner out there,” Senator Bernard Sanders, a Vermont independent, noted.
A vote this week on a proposal to create a bipartisan commission to recommend ways to attack rising federal deficits was seen as illustrative of the Republican strategy to thwart Democrats. Though the idea attracted 53 votes — 36 Democrats, one independent and 16 Republicans — it failed because it did not cross the 60-vote threshold.
At least six Republicans who had previously supported the plan voted against it, as did others who have backed the idea in concept. Some of those who voted against the plan suggested they did so because they did not want to give Democrats political cover by joining with them in a deficit reduction effort.
“It was stacked,” Senator John McCain, Republican of Arizona, told reporters in explaining his rationale for switching from a supporter to an opponent of the commission.
Some leading Republicans say they believe there is still an opportunity for the administration, Congressional Democrats and Republicans to find ways to work together. But they say it would require a concerted outreach effort and the White House abandoning the idea of wooing a few individual Republican senators.
“I am astonished that the White House’s idea of working in a bipartisan way is this shooting gallery method, going around and seeing if you can pick off one or two or three,” said Senator Lamar Alexander of Tennessee, a member of the Republican leadership.
Other Republicans say Mr. Obama should convene a summit of Congressional Republican leaders.
“If the president reaches out to the Republican leadership in a genuine way, the spotlight shifts from his overreaching to whether we can meet him in the middle,” said Senator Lindsey Graham, Republican of South Carolina.
Congressional Democrats say they are pessimistic about cooperation. Using their power of 60 for one of the final times, Democrats did secure approval of the antideficit legislation Thursday on a straight 60-40 party-line vote but interpreted the united Republican opposition as a sign that Republicans were not moved by the president’s appeal.
The NYT also reports that the Senate gave Ben S. Bernanke a second four-year term as the head of the Federal Reserve on Thursday after critics excoriated the central bank’s conduct in the years leading up to the financial crisis.
The 70-to-30 vote was the weakest endorsement ever extended to a chairman in the Fed’s 96-year history.
The confirmation was a victory for President Obama, who had called Mr. Bernanke an architect of the recovery, but also signaled the extent to which the Fed, once little known to the public, has become the object of outrage over high unemployment and bank bailouts.
In several hours of debate, senators said that the Fed had abetted, then ignored, the housing and credit bubbles and allowed banks to keep dangerously low capital reserves and to make reckless lending decisions that ruined consumers. Some even blamed Mr. Bernanke for the falling dollar and questioned his commitment to free enterprise.
In contrast, Mr. Bernanke’s supporters were muted. They reiterated that the Fed had made mistakes but said that Mr. Bernanke had helped save the economy from a far worse recession.
After a week in which top White House officials and Mr. Bernanke met with Democratic leaders in the Senate to secure support, the Senate first voted 77 to 23 to end debate, with more than the 60 votes needed to overcome the threat of a filibuster.
On a second vote, to confirm, the 30 dissents came from 18 Republicans, 11 Democrats and one independent, Bernard Sanders of Vermont.
On Thursday evening, Mr. Obama congratulated Mr. Bernanke in a statement. “As the nation continues to face the consequences of the worst recession in a generation, Ben Bernanke has provided wisdom and steady leadership in the midst of the financial and economic crisis,” he said.
While an arm-twisting campaign by the administration limited the opposition, the outcry against the Fed will most likely continue rippling through economic policy generally, and Mr. Bernanke’s leadership of the Fed in particular. The effects could be felt first in the debate over how to reform financial regulations. The Obama administration has proposed consolidating risk regulation under the Fed, while some in Congress want to strip away its oversight authority.
“The institutional prestige of the Fed, even apart from this vote, had taken a hit, and it started back around the disaster of September 2008,” said Stephen H. Axilrod, who worked at the Fed for 34 years and wrote a history of its monetary policies. “I don’t think it has recovered. This is a low point in the Fed’s recent history, that’s for sure.”
The vote also made clear Congress’s insistence on transparency from a historically secretive institution that has made extraordinary interventions in the market since 2008.
“The Fed is going to have to work hard, for a long period, to regain the public confidence of the sort it enjoyed during the halcyon days when everything was going so swimmingly,” said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley.
Senators from opposite ends of the spectrum formed unlikely alliances. After Mr. Sanders, who calls himself a socialist, finished denouncing Mr. Bernanke, Jeff Sessions, a conservative Republican from Alabama, rose to do the same.
Another Alabaman, Richard C. Shelby, the top Republican on the banking committee, which approved the nomination last month by a 16-to-7 vote, laid out a bill of particulars, saying Mr. Bernanke’s handling of the financial crisis did not make up for his failings before that time.
“Considerable economic devastation occurred as a result of Chairman Bernanke’s loose monetary policy and weak regulatory oversight,” Mr. Shelby said. “If we don’t hold Chairman Bernanke accountable, what precedent are we setting for future regulators?”
To an extent, the rhetoric against Mr. Bernanke reflected a spilling-over of frustration at two of his collaborators: the former Treasury secretary, Henry M. Paulson Jr., and the current one, Timothy F. Geithner.
And looming over it all was the role of Mr. Bernanke’s predecessor, Alan Greenspan, whose once-sterling reputation has been diminished as his decisions to keep interest rates low after the 2001 recession have been brought into question.
Mr. Bernanke, 56, was a member of the Fed’s board for part of that period, from 2002 to 2005, when President George W. Bush named him to lead his Council of Economic Advisers. He rejoined the Fed, as chairman, in 2006, and Mr. Obama renominated him last year. Mr. Bernanke is a Republican economist and an authority on the Depression.
“I knew that he would continue the legacy of Alan Greenspan, and I was right,” said Senator Jim Bunning, Republican of Kentucky, who was the lone vote against Mr. Bernanke in 2005.
Mr. Bunning cited a half-dozen statements from 2007 to 2009 in which Mr. Bernanke expressed optimism about the housing market, bank capital ratios, the capitalization of Fannie Mae and Freddie Mac and the unemployment rate. Saying that Mr. Bernanke had been repeatedly wrong, he declared, “We shouldn’t be paying the Fed chairman to learn on the job.”
Senator Sheldon Whitehouse, Democrat of Rhode Island, echoed that, saying Mr. Bernanke had shown “a troubling pattern of false confidence.” Senator Jeff Merkley, Democrat of Oregon, went further, saying the Fed had “helped set the fire that destroyed our economy.”
While less passionate, supporters of Mr. Bernanke said he had acted deftly and decisively, at least since the collapse of Lehman Brothers in September 2008.
“He basically allowed the Fed to become the lender of the nation,” said Senator Judd Gregg, Republican of New Hampshire. “Nobody had ever done that. The way he did it was extraordinary in its creativity, and the results were that the country’s financial system did not collapse.”
The last time any nominee for chairman faced such opposition was 1983, when the Senate confirmed Paul A. Volcker to a second term on an 84-to-16 vote. Mr. Volcker, too, had served under presidents of opposing parties and had navigated the Fed through a difficult recession.
But while Mr. Volcker sharply raised interest rates to tame runaway inflation — actions that were initially unpopular but were later praised — Mr. Bernanke faces a different challenge. The Fed has held short-term interest rates near zero since December 2008, a policy reaffirmed on Wednesday. And while analysts expect rates to start rising later this year, the scale and timing of that rise will be a challenge. So, too, will be the unwinding of the Fed’s emergency lending programs and its purchase of $1.25 trillion in mortgage-backed securities.
Many politicians will not want the Fed to put the brakes on recovery by raising rates. Indeed, the Senate majority leader, Harry Reid of Nevada, offered only a lukewarm endorsement last week after telling Mr. Bernanke that the Fed must do more to ease lending to households and small businesses. While the Fed says Mr. Bernanke gave Mr. Reid no specific commitments, the central bank will continue to face close scrutiny.
“Their independence from political pressures has been tarnished,” Mr. Axilrod said. “And if the market believes the Fed will not control inflation, there will be more inflation.”
