Republicans appear to have documents linking Ben Bernanke to a decision to give the backdoor bailouts at AIG despite staff recommendations. They are very specific about which documents show this and they want them made public. If they are made public before the confirmation vote, Bernanke is obviously in a lot of trouble. But there’s a much worse scenario.

If the Democrat leadership and the White House strong arm the Democratic senators into confirming Bernanke with most Republicans voting no – and then the documents are revealed, you have a political disaster on your hands. Then the Democrats will appear to have been on the side of funneling taxpayer money to the banks in a way that was unconscionable and inexplicable (given that some of them didn’t even ask for the money and everyone agrees that they didn’t need and couldn’t get a hundred cents on the dollar anywhere else).

You know why they will appear to be on the side of protecting the bankers and screwing over the taxpayers? Because they will be on that side. Bernanke is not the only sign of that, but he will be the perfect symbol of it. The Democrats would have to be nuts to walk into this trap. Unless of course they are so thoroughly bought by the banks that they will do anything they ask of them, no matter what the political consequences are.

And this is only the latest possible scandal involving Bernanke. Some of the politicians (ironically, mostly Republicans) have belatedly woken up to what I (and many other people) said two months ago (and long before that as well):

Why are we rehiring the guy who steered the Titanic into the iceberg in the first place? … His knowledge in handling depressions might not be so handy if he hadn’t gotten us into one … Picking the same guy as Bush, and the same exact guy who was at the helm when the economy crashed, is definitely not change we can believe in. Ben Bernanke is the definition of the status quo. He is part and parcel of the Washington and Wall Street establishment that caused our economic problems in the first place. Why the hell would we put this guy back in charge?

If the Democrats make this mistake, there’s no helping them and there is no hope in them. But if they realize soon that this is a political time bomb in the making, then they need to pick a new person for the position that we know is undeniably on the side of the people and also has undeniable expertise.

Some great names are possible candidates that fit that description. Simon Johnson, Elizabeth Warren and Bill Black come to mind. They all have the credentials and they all understand the very serious need for regulation to make sure another economic collapse doesn’t happen again. That’s of course precisely why the banks are deathly afraid of someone like them running the Fed and actually providing a check on their out of control risk taking (which leads to out of control paychecks in the short run for them). And precisely why they love Bernanke and desperately want him re-confirmed. No one lets the banks run rougshod better than Bernanke.

But there is one name that still stands above the rest as clearly the best candidate for the Fed opening – Joseph Stiglitz. Nobel prize winner, former Chief Economist for the World Bank, former Chair of the Council of Economic Advisors and perhaps the most respected economist in the world.

He saw this financial collapse coming, he explained why it would happen and what should be done to prevent it. We didn’t listen the first time around. Doesn’t it make sense to listen the second time? Who would know better than him? Who has better credentials? Who understands better the needs for checks ans balances on the largest financial institutions?

If Obama wants to burnish his image as standing with the common man and not the bankers, once again, there is one clear choice – Joseph Stiglitz. As anyone who has been following his writing clearly knows, he is no patsy for the banks. He is a scholar and will be judicious in approaching regulation, but he will also indisputably bring the hammer when necessary.

Oh yeah, there is one more upside. We know he would take the position. How do we know? I just asked him. Here’s what he said (in an interview where he also clearly explains what needs to be done to fix the financial system):

"Obviously I think that if the president asks one to take a job of that importance in the context particularly of an economy in the current fragile state, I think I’d have to, I’d have to accept it. And particularly, you know, I’ve been very critical of what the Fed has done, and in my book, "Freefall", I do point out all these mistakes that they’ve made, and I would actually welcome an opportunity to try to rectify some of those mistakes."

If Obama is playing yet another political game, he will either push Bernanke through and have it blow up in his face (and have the Republicans steal the mantle of populism) or he will pick another Wall Street stooge in his place (the excuse will be that they don’t want to spook the markets and that person has the "confidence" of the business community).

But if he wants to get serious about fixing the mess we’re in and picking the most qualified and most trusted person to do it, he would obviously pick Stiglitz. So, as usual, we wait with baited breath to see if Obama is for real or just another politician. It’s surprising we still have this much hope left.

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