One of the individuals most closely involved in trying to halt the damage from the financial crisis six years ago said few people truly appreciate how close to calamity the world came.
“It was very scary,” former Federal Reserve Chairman Ben Bernanke told a packed crowd Wednesday at the Colorado Convention Center’s Bellco Theatre as part of Schwab Impact 2014.
Had authorities not stepped in the way they did in late 2008, Bernanke estimated about 14 major financial institutions around the globe would have failed, triggering a stock market collapse and protracted depression.
Bernanke recalled when he and then-Treasury Secretary Hank Paulson went before Congress asking for the hugely unpopular relief package known as TARP. One senior senator, hands on his head, told him “nobody here is giving you permission to do this. This is your decision and your responsibility.”
Congress, at great political cost, passed the bill, authorizing $475 billion to stabilize the financial system. Stock markets rallied by early 2009, although it took much longer for the economy to turn the corner, leading to charges that officials were more interested in saving Wall Street than Main Street.
Addressing a question from Liz Ann Sonders, chief investment officer at Charles Schwab, Bernanke acknowledged that the Federal Reserve’s purchases of government bonds and mortgage debt, known as quantitative easing, lost its punch the longer it went on.
But he said Europe’s ongoing flirtation with recession vindicates the aggressive moves made to stimulate the U.S. economy, as has the lack of inflation that many predicted would be unleashed.
“There was never a risk of inflation,” he said, responding to one of the chief attacks against monetary stimulus.
Bernanke said the Fed reform he’s most proud of, besides boosting transparency, is leaving behind a central bank much more attuned to detecting and fighting financial crises.
“Financial stability is equal partner to monetary policy,” said the former Stanford University professor, whose academic expertise includes research on the Great Depression and financial panics. Now, Bernanke is a fellow in the Economics Studies Program at the Brookings Institution.
The Federal Reserve got its start in 1914 in response to the 1907 financial crisis, when financier J.P. Morgan stepped in to save the financial system, Bernanke said.
Its initial mission was to act as a financial stabilizer. But over the years, monetary policy, including overseeing the money supply and regulating interest rates, came to dominate the central bank’s focus.
Today’s Fed has a box of tools created during the crisis that leave it better able to respond the next time trouble appears. Yet Bernanke acknowledges some may not view him or the actions taken so positively — one reason he is traveling the country, speaking about the crisis and why he did what he did.
To some, Bernanke may remain an overstepping villain, but he faced a friendlier crowd Wednesday.
“People view your efforts as something that saved the financial world as we know it,” Sonders told him.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or
