Federal Reserve Chairman Ben Bernanke knows Americans
have not forgiven him for the Wall Street bailout that
saw greed in financial company executive suites go
unpunished while regular people lost their homes, jobs
and nest eggs in the financial crisis of 2008.
can understand why they are angry," he said.
says he is frustrated that he hasnít been able to
convince more Americans that his actions were necessary
to avoid a deep depression.
an attempt to do just that and, he says, to do his part
to avert a future crisis, he wrote "The Courage to
Act: A Memoir of a Crisis and Its Aftermath," which
he is touring to promote. I chatted with him after a
speech in Chicago and asked him the questions youíve
wanted him to answer all these years. Here are his
answers, edited for length and clarity.
You and former Treasury Secretaries Hank Paulson and Tim
Geithner have repeatedly said you had to bail out Wall
Street banks because the results otherwise would have
been "catastrophic." But people remain
furious. They have asked if there was any real evidence
of catastrophe. Or were you just saving Wall Street with
There is a lot of evidence that in a financial crisis,
people lose confidence, stocks drop, everyone hunkers
down and hordes cash. That was a major factor in the
Great Depression in the 1930s. And after the Lehman
(Bros.) collapse, (everyone) went into a panic,
everything froze up, credit was not available. We were
dropping 600,000 to 700,000 jobs.
financial system is critical to our market economy, and
if itís not working everything comes to a grinding
Did you actually see that?
Betsy Duke (then a Fed governor) went to San Francisco
and was talking with business people. She sent me an
email that radiates horror and said, "For Godís
sake, think about the financial system." It was
really graphic. She wrote: "Across the board, every
business (is) canceling every capital project and
discretionary program possible. Credit is increasingly
unavailable. Small businesses and nonprofits are missing
payrolls and shutting down. I would plead to do anything
possible to restore confidence in the entire financial
People complain that they lost homes, jobs, their
future, and yet no one from Wall Street went to jail.
I have been uncomfortable with the Department of Justiceís
prosecution strategy. They penalized large banks (with
fines) rather than trying to track down individual
responsibility. It would have made more sense to
consider the individuals in management and employees who
make the decisions. We would have learned more and been
more fair if the people whose actions led to problems
were held accountable.
not against the law to take a dumb risk. It is against
the law to misrepresent what you are selling.
You write that the Fed had to take on more
responsibility than it would have if Congress had done
more. You write that you were surprised it was
controversial to help homeowners in trouble and argue
for infrastructure spending.
An infrastructure building program would have been
helpful. It would have added to jobs immediately. In
2009, Congress approved a big fiscal package, but fiscal
policy after the initial program kind of went AWOL. So
everything got laid on the Fed and the Fed was
struggling to support the recovery through monetary
policy, which is why interest rates have been so low.
Fiscal policy (government spending) would have given us
a better recovery. And it would have helped if Congress
approved the debt ceiling and not shut down the
If Congress had built infrastructure, would interest
rates be higher now?
I donít know. But if there had been a more balanced
approach, the Fed wouldnít have had to be as
aggressive as it was because part of the burden would
have been carried by fiscal policy.
Economists such as former Treasury Secretary Larry
Summers say the global economy could be weak for a
decade. Will it be that long?
Among the major industrial economies, only the UK has
had a recovery like the U.S. Europe is still quite far
from full employment. Japan is still trying to break
deflation. There is a big slowdown in China.
slowdown was anticipated, but emerging markets as a
group are growing very slowly, worse than anticipated.
Fifty percent of global GDP comes from them. If they are
slowing it will subtract from our economy ó especially
the manufacturing sector, and manufacturing is already
Could that cause a U.S. recession?
The Fed is trying to compare the strength of our
economy. Households are in pretty good shape, but the
international economy is sluggish ó so itís really a
balancing act. Most likely, the U.S. will keep growing
but itís a head wind to our recovery.
You write about regulators not getting on top of risky
housing lending and financial risks before the crisis.
It seems like we could reach crisis again based on the
same human nature: Regulators not wanting to rock the
boat when things seem good.
The good news is we hadnít had a financial crisis for
76 years ó 1931 to 2007.
I agree with you.
important for regulators to be vigilant and keep
monitoring. In the past there were many gaps in
regulation. No one was looking out for the system as a
whole. Thatís changed radically. We have the Financial
Stability Oversight Council and the Fed looking at the
whole system. That doesnít mean problems wonít get
by. Iím sure they will.
If you were going into retirement, would you be worried
that a new crisis would leave you without the resources
One lesson that really struck me was that in the crisis
and when the stock market crashed in 1987, people sold
their stocks and said, "Iím getting out of
this." And that was dumb because thereís a really
good chance that the stock market will come back. If
nothing catastrophic happens you should be OK.
The origins of the financial crisis were in mortgage
practices that were harmful to consumers and ultimately
the system. You note in the book that consumer
protection was an afterthought, a place for Fed members
with the lowest seniority. Do you see a change?
A big change. The Fed lost those authorities. The
Dodd-Frank Act created the Consumer Financial Protection
Bureau. Their entire mission is consumer protection. It
represents an upgrade of regular resources directed to
this issue. I do think itís important to have strong