Mr. Toomey expressed a number of reasons for his opposition, chief among them was the Fed’s central role in precipitating the economic recession we are currently undergoing.
For three years, from 2002 through 2005, the Fed maintained negative real interest rates, taking the nominal Fed Funds rate to a low of 1% in June 2003. These unnaturally low interest rates created a powerful incentive for individuals and institutions to leverage excessively, which created a credit bubble. This, in turn, created the residential real estate bubble, the collapse of which precipitated the crisis.
Mr. Bernanke was a member of the Fed Board from 2002 until he was sworn in as Chairman in 2006, and was a member of the Federal Open Market Committee, the committee directly responsible for setting short-term interest rates.
“This was a difficult decision,” Mr. Toomey said. “I have great respect for Chairman Bernanke’s intellect and expertise, and I believe he has tried to do what he believes is best for the country and its economy. However, Chairman Bernanke’s refusal to acknowledge the role the Fed played in creating the current financial and economic crisis leaves little assurance that the Fed will not repeat those errors under his continued leadership.”
“In addition, I have concerns about Chairman Bernanke’s participation in the extralegal activities in the fall of 2008 and the recent politicization of his confirmation, which raises question about his potential susceptibility to political pressure. I have a lot of respect for Chairman Bernanke, but it is crucial that we learn from the mistakes that led to this economic crisis. Without that acknowledgement, I cannot give him my support.”