The great Andy Busch of BMO Capital Markets draws up a scenario that could see Ben Bernanke get pushed toward the exits:

David Wessel in his book, “In Fed We Trust: Ben Bernanke’s War on the Great Panic” said this, “But in what would prove a colossal mistake, they (Bernanke, Paulson, Geithner) hadn’t come prepared with a plan to prevent a bankruptcy if they couldn’t sell Lehman as they had managed to sell Bear Stearns.” This ability to see the danger and yet not being prepared to stop it is truly troubling.

However, this is not why Ben Bernanke may lose his job. It will be due to someone taking the fall for the crisis and for why the unemployment rate remains above 9.5%. This is Bernanke’s Mendoza Line. This is what Moody’s John Lonski and I agreed upon last night on the Kudlow Report: Bernanke can be the fall guy for a weak US economy.

Envision a political world for President Obama in which he’s not getting his major pieces of legislation through Congress. Imagine then, he’s also got an economy that is not rebounding enough to generate job gains and an economy that may be experiencing a strange form of commodity inflation leading to higher gasoline prices. Something has to change and that change could cost Bernanke his job.

If we’ve learned anything from last fall, we know that what was once deemed rock solid can crumble away amidst the pressure of an outside force.

David Rosenberg of Gluskin Sheff outlines the bear case on Ben Bernanke getting reappointed by Obama:

Bernanke was a giant cheerleader for the leverage-induced economy during his time as the chief economist at the White House and while he was aggressive (and likely broke every rule in the book of central banking) in getting the credit market and economy back on track, he failed at the outset to realize the severity of the credit collapse and treated it as a liquidity event only for months

The Fed’s economic forecast that was published just over a year ago for late 2008 and 2009 is an embarrassment, to say the least. Valuable time was lost under his watch and the question is (i) does the Administration look at his entire record as opposed to his period as a White Knight, and (ii) will Mr. B end up being a scapegoat once the economy relapses in the fourth quarter and the unemployment rate makes new post-WWII highs along the way. See the front page of the NYT for more — Bernanke, a Hero to his Own, Still Faces Fire in Washington. The search committee is already out, by the way, and the likes of Blinder, Yellen, Ferguson and Summers are on it.

Me: I notice that Intrade has Bernanke at 80 percent, but contract is pretty lightly traded. I just keep thinking about the House Government Oversight Committee meeting concerning BofA and Merill where members from both parties basically said Bernanke was lying about his role in the merger. That can’t be good.

Over at ClusterStock, former Merrill Lynch strategist Richard Bernstein tells us why it should be “one and done” for Ben Bernanke. (He compares BB to Burns and Miller from the 1970s. Ouch!)

1) He is a status quo chairman when big change is needed.

His policies both before and after the banking and credit crises have attempted to maintain financial market status quo. … Mr. Bernanke’s comments regarding his inability to proactively control financial bubbles, and the ease with which the Fed could manage a bubble’s deflation, were astonishing for their naïveté. The fact that the credit bubble’s deflation caused the worst recession of the post-war period seems to demonstrate that Mr. Bernanke has failed even according to his previously expressed expectations.

Wall Street thrives on financial asset inflation’s cheaper and more abundant credit. Mr. Greenspan and Mr. Bernanke made sure that the Street was not disappointed regardless of the longer-term detrimental effect on the US economy. The next Fed Chairman should be more concerned with the stability of the financial sector, rather than with the growth of the financial sector.

3) He doesn’t understand the dangers of financial asset inflation.

The future of monetary policy, in my opinion, will focus on the delicate balance between real and financial asset inflation. The US economy does not function well when there is excessive real asset inflation. The 1970s have proven that. However, the US economy also does not function well when there is excessive financial asset inflation. … Yet most central bankers, like Mr. Bernanke, do not yet appreciate this delicate balance. They continue to operate under the assumption that real asset inflation is bad and financial asset inflation is good.  In this respect, Mr. Bernanke’s term as Fed Chairman seems to mimic those of Arthur Burns and William Miller during the 1970s.

The next Fed Chairman should probably come from one of the Federal Reserve’s district banks. The person should not primarily focus on Wall Street, but rather should fully understand how the optimal cost of capital in the financial markets drives efficient real investment and maintains a stable banking system. The next Fed Chairman should have a thorough understanding of small businesses lending (imagine if TARP money had gone to the Small Business Administration instead of to bank trading desks?) and how the future of the US economy depends on efficient real investment and not on financial engineering. That person undoubtedly exists somewhere within the Federal Reserve Board but, unfortunately, it is not Mr. Bernanke.

Ben Bernanke isn’t just campaigning for his own reappointment — though that certainly is part of what’s going on. He is also bolstering the public image of the Fed, which could use some help:

If Ben Bernanke were running TV ads, taking polls and holding town hall-style meetings, it wouldn’t be any clearer that he’s conducting an explicit reelection campaign for another four-year term as Federal Reserve chairman come next January. Oh, wait a second, he just did hold an unprecedented town hall meeting. And it was one worthy of a presidential candidate charming primary voters in Iowa.

At the Kansas City Fed last night, Bernanke answered a couple dozen questions from 190 area residents for a three-part public television broadcast. Like a veteran politico, he tossed out the occasional platitude (”The best way to have a strong dollar is to have a strong economy”), railed against Washington (”I don’t think the American people want Congress running monetary policy”), gave a riveting and heroic personal narrative (”I was not going to be the Federal Reserve Chairman who presided over the second Great Depression”), and got downright folksy when talking about too-big-too-fail (”When the elephant falls down, all the grass gets crushed as well”).

Message to America: Ben Bernanke, a pharmacist’s son from Dillon, South Carolina, feels your pain. Now it’s not as if previous Fed chairmen haven’t campaigned for another four-year hitch. But the usual modus operandi is to curry favor with the Electorate of One — the president — who will be doing the renominating. And the precise mechanism has been a growth-friendly monetary policy.

Of course, the Fed has already been, to use Bernanke’s town hall phrase, “putting the pedal to the metal” to bolster the fragile economy and financial system. And that’s sure been to Wall Street’s liking. A Reuters poll last month found that economists rated Bernanke at eight out of 10 for his handling of the financial crisis.

But Bernanke’s smart to try and also get Main Street on his side. Obama, for instance, might prefer a more dovish Fed chair, such as San Francisco Fed President Janet Yellen, who’ll worry more about unemployment than inflation as the 2010 and 2012 elections near. Bernanke’s pushback against Obama’s proposals for a consumer financial protection agency is also another sign of his independence.

Plus, the president could desire to make more diversity history by nominating the first woman Fed chair — while leaving it to aides to rip Bernanke in background briefs to reporters. (”He was part of the Fed team that left rates too low for too long and failed to regulate Wall Street.” “Remember, he called the mortgage crisis a $100 billion problem.” “Bernanke was way too slow to ease in 2007.”) What’s more, Bernanke has to worry about a Congress where populists in both parties have been critical of his role in providing bailouts to Wall Street banks and AIG, as well as Bank of America’s takeover of Merrill Lynch.

So if Bernanke wants to keep his job, the PR campaign should continue. More TV interviews like the one he did on 60 Minutes in March. Maybe a televised town hall meeting in each Fed district. How about a Chairman’s Blog? And if we start heading into November and Obama still hasn’t renominated him? Two words: Oprah Winfrey.

This from Mike Feroli of JPMorgan (bold is mine):

Beyond the issues surrounding the economy and exit strategies, another aspect of the testimony that was of interest was the political angle. Bernanke made his strongest case to date that Fed actions have helped prevent what could otherwise have been an economic catastrophe. His very first sentence of the testimony read “Aggressive policy actions taken around the world last fall may well have averted the collpase of the global financial system.” After listing the notable imporvements in credit markets, he goes on to say “Many of the improvements in financial conditions can be traced, in part, to policy actions taken by the Federal Reserve to encourage the flow of credit.” These statements should be seen in the context of the whithering criticism of the Fed’s conduct of policy, some of that criticism coming from within Congress.

Me: Interestingly, the betting markets dropped the chances of Bernanke’s reappointment to 67 percent, down 3 points.

My pal John Tamny doesn’t think the Fed chairman deserves a second term for the following reasons

1) Bernanke is too much of a political operator.

2) Bernanke thinks too much economic growth causes inflation.

3) The dollar has collapsed vs. gold during Bernanke’s tenure.

4) Bernanke was a TARP enabler.

5) Zero percent interest rates are  a market of Fed failure.

Bottom line:

Here’s hoping the Obama administration ignores the establishment consensus, and realizes that the job of Fed chairman should be a prosaic, undesirable one, whereby the chairman is humble in his actions with an eye solely on issuance of a stable dollar.

Bernanke’s past and present lust for the job of Fed Chairman signals an expansive vision about what the position entails, and this means he’s unfit for the role, which should have greatly diminished prestige. Indeed, the fact that he covets the position so much tells us all we need to know about his love of status and rank. As Bagehot observed, “such men are dangerous.”

From the WSJ:

Treasury Secretary Timothy Geithner is expected to play a key role in advising President Barack Obama on whether to reappoint Mr. Bernanke. Mr. Geithner has worked closely both with Mr. Bernanke and with the leading alternative for the powerful post — Lawrence Summers, the former Treasury secretary, who is currently the president’s top economic adviser.

Before making a decision later this year, the White House also is expected to look at other economists, including Roger Ferguson and Alan Blinder, former Fed vice chairmen; Janet Yellen, president of the San Francisco Federal Reserve Bank; and Christina Romer, chairman of Mr. Obama’s Council of Economic Advisers.

My spin:  What is the political landscape here? You would think that GOPers would prefer Bernanke since he was a Bush appointee, while the rest are no-doubt Dems. And it’s not like Obama would dump BB for John Taylor or Glenn Hubbard.  Yet Big Ben has come to personify Bailout Nation to many on the right. And at least one high-profile conservative, CNBC host Larry Kudlow, seems to have a soft spot for Summers:

So given the choice between those two, who do I like? Well, meaning no disrespect to Mr. Bernanke, I think I’ll go out on a limb and choose Summers. Why? Because during the Clinton years, when Summers held several Treasury posts (including Treasury secretary), a strong-dollar policy was in place. Back then I called it King Dollar. And I frequently praised Robert Rubin and Larry Summers for backing King Dollar.

And since I believe in a price-rule approach to Fed policy, where the dollar should be stable and the Fed head should watch open-market prices such as the dollar, gold, and commodities in order to promote price stability and economic growth, Larry Summers’s résumé as a Clinton-Rubin alumnus is closer to my liking.

And in terms of Mr. Summers’s so-called prickly personality, that might be an excellent credential for a truly independent Fed chairman. Paul Volcker had a prickly personality, but he was the inflation slayer (with Ronald Reagan’s help).

Ben Bernanke, on the other hand, seems to be targeting the unemployment rate, and he has never given much emphasis to a stable dollar as a key Fed-policy variable. Right now the bond markets are pricing in five or six Fed tightening moves as the economy shifts toward recovery. And at least until recently, the dollar was soft and gold was strong. But if Mr. Bernanke targets the unemployment rate, the Fed will overstay its easy-money welcome and inflation will shoot up in the years ahead.