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October 14th, 2008
04:54 PM ET

We're laying the groundwork for recovery


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[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/10/14/art.bernanke2.jpg]
Ben S. Bernanke
Chairman, Federal Reserve
Wall Street Journal Op-Ed

The necessary policy tools are in place.

As Americans well know, the challenges we now face in the financial markets and in the economy are both extraordinarily complex and historic in scope. I firmly believe, however, that with the actions policy makers are announcing today, we will be able to meet those challenges.

Our strategy will continue to evolve and be refined, and we will adapt to new developments and the inevitable setbacks. But we will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy.

Over the past year, the Federal Reserve has actively used all its powers and authority to try to help our economy through this difficult time. Central banks around the world have also consulted closely and cooperated in unprecedented ways to reduce strains in financial markets and to bolster our economies. We will continue to do so. However, clearly the time had come for a more comprehensive and broad-based solution.

History teaches us that government engagement in times of severe financial crisis often arrives very late, usually at a point at which most financial institutions are insolvent or nearly so. In these conditions, the consequences and costs of inertia and inaction can be staggering. Fortunately, that is not the situation we face today.

The Congress and the administration acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain capable of fulfilling their critical function of providing new credit for our economy. Their prompt passage of the financial rescue legislation made possible the critical measures that will be announced this morning. These steps will allow us to restore more normal market functioning, and encourage private capital to further support the reinvigoration of financial markets.

I also find it heartening that we are seeing not just a national response but a global response to the crisis, commensurate with its global nature. Indeed, this weekend, the finance ministers and central bankers of the G-7 industrialized countries announced a comprehensive plan to unfreeze credit and money markets, increase capital in banks and other financial intermediaries, and protect deposits. Each of these governments is now moving quickly to put their own specific measures in place. The announcements we are making today are consistent with the G-7's statement of principles.

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Filed under: Culprits of the Collapse • Economy
soundoff (28 Responses)
  1. Robert - CA

    With everything but the kitchen sink being thrown at the economic crisis around the world, the DOW still drops over 700 pts today. How much more of this extortion from Wall St. are we going to have to take before they stop? When every last dime from our chirdren and grandchildren has been handed over to them (Wall St)?

    October 15, 2008 at 5:46 pm |
  2. kenneth dixon nogales AZ

    Anderson we as a nation must in front address the use of the 38 US codes by the veterans Administration denies the returning solders and soon to be Veterans just medical care and compensation for their wounds and mental problems as the Government are turning very ill people onto the street as they have done with Timothy McVey thus we had well over a hundred and sixty not involved American citizens killed all because the government did not give proper care to McVey a well decorated Veteran from the Iraq Goft War that was again mis- handled by a Republican President. Then refuse to change a set of laws that are 60+ years old and not doing the job it was intended to do.

    October 15, 2008 at 3:32 pm |
  3. Ken Moss

    I would hope that George Bush will be making the list of 10 or at least an honoraable mention. Among other articles, the Dec 31, 2007 edtion of the Wall Street Journal details the tens of millions of dollars that companies like Ameriquest, Citigroup, Wells Fargo and other subprime lenders gave to the Bush administration and other lawmakers to defeat legislation to stengthen lending laws.

    October 15, 2008 at 2:01 pm |
  4. Satinder Mullick

    Correction: It was Congressman Richard Baker–not Barker.

    October 15, 2008 at 12:32 pm |
  5. Satinder Mullick

    I saw one comment about–did any one saw this crisis.
    Former Congressman Richard Barker of Louisiana who was a realtor and became congressman during S&L crisis–says"I think I must have had eight bills and maybe 40 hearings going back to 1996."But back when he was sounding the ALARMS in Congress,it was not being heeded. When he questioned Franklin Raines,a fellow Congressman accused him of a "lynching".
    He tried to REFORM Fannie Mae and Freddie Mac–but others did not see his fear.

    October 15, 2008 at 12:31 pm |
  6. Satinder Mullick

    I commend Dr.Bernanke for his comments on Japanese and Swedish response to Banking Crisis.
    Your choice of Swedish approach is what US needs.

    October 15, 2008 at 12:19 pm |
  7. Satinder Mullick

    Dr.Bernanke;
    Please inform the Americans about mistakes made in the 2nd depression of 30's.
    * Looking inward–Protectionism in trade.
    On monday,10/13/2008,I heard a debate between Massa and Kuhl for US Congress.I couldn't believe Massa stand on Free trade.
    God forbid if the next Congress has too many of "Protectionist" congressional reps.in the next congress.
    Give your views on "Protectionism in trade".
    You brought Paul Krugman to Princeton–whose work on Trade won Nobel Prize on Monday.So have Krugman /yourself speak about this subject..

    October 15, 2008 at 12:15 pm |
  8. Satinder Mullick

    I respect Ben–for his candid views and actions since Sept.2008–but why he did not act fast after taking over.He never talked about the Housing Bubble, Leverage(debt to capital ratio of Investment bankers) or No down payment mortgages creating big problem.
    He will be well advised to talk to Julian Robertson of Tiger Fund–who saw the current situation and his concern about Future Credit creation limitations.
    I suggest Ben and others to read a WSJ article that was written by William McGurn on 10/14/2008–close to Ben's article.The article is titled–"Shouting 'Fannie1' in a Crowded Congress" in Wall Street Journal of 10/14/2008.

    October 15, 2008 at 12:01 pm |
  9. Alex

    Alan Greenspan started this economic crisis and now Ben Bernanke is simply adding fuel to fhe fire by doing EXACTLY the same things Greenspan was doing.

    Bernanke keeps lowering interest rates and trying to make easy money available to everyone, just as Greenspan did. What this economy needs is lower home prices, not lower interest rates which are doing nothing except debasing the U. S. dollar.

    As a Realtor with over 30 years of residential real estate experience and no college degree, I cannot believe that I am wiser than a Harvard graduate who is now the head of The Federal Reserve. In order to maintain an explosive rise in home prices, income would also need to rise at a rapid pace – which, of course, was and is impossible.

    Bernanke keeps running his currency printing press at full speed which could soon lead to a collapse of the dollar. He knows that Japan lowered their interest rates to zero and that did not nothing except help their economy sink into a decade-long recession.

    All this leads me to believe that either Bernanke is part of a conspiracy to rob from the middle-class and give it all to his wealthy, crooked coherts or he just doesn't know what to do in this crisis so he just keeps pressing down hard on the accelerator instead of slamming on the brake.

    My suggestion for one of the 10 MOST WANTED CULPRITS OF THE COLLAPSE is Hank Paulson.

    It is unbelievable that Paulson, a former Goldman Sachs executive, would remain The Secretary of the U. S. Treasury when Goldman Sachs has proven over and over again that it deceives the public.

    Goldman is well known for issuing strong buy recommendations to the public on stocks that are at their highs and then downgrading the same stocks when they are at or near their lows.

    One very recent example – buy U. S. Steel at 196 on June 23, 2008, then several weeks later when the stock is at 45 and Goldman is obviously done shorting the stock, they downgrade it so distressed owners will throw in the towel and sell.

    Professional traders know to use Goldman's recommendations as a contrarian indicator but the public will fall for their lies every time. And this continues to go on with no punishment whatsover. Why? How can they continue to do this and get away with it every time?

    And how about taking bad mortgage and credit debt that nobody wanted to buy, combining them into neat little packages called HIGH YIELD BONDS and selling them to investors all over the world – causing the global financial meltdown.

    And to top it off, Paulson hires one of his Goldman cronies to manage the $700 billion dollar bailout package. And they immediately pump $250 billion dollars into bank stocks – including, yes none other than Goldman Sachs. Duh -isn't this a conflict of interest?

    Oh, and Anderson, why don't you investigate the possiblity that the U. S. Treasury and other central banks are shorting gold to keep its price down against all the fiat (currency not backed by gold) currency that is out there. Shorting gold in a desperate attempt to put off the inevitable collapse of currencies that have grown to massive, unsustainable levels.

    October 15, 2008 at 11:07 am |
  10. Mark R

    Just a thought. It is painfully obvious that the Economy will be a top priority for the next President. He will need to not only deal with the economy itself but also the social backlashes that are a result of it. I think that a part of the solution shouyld be a 'give back' to the American people. I am not talking a government handout here. I am not talking about giving people $2000 in a tax refund.

    I think a moritorium (2 years) on the interest paid on home mortgages (primary residencies only) is in order. This is not the interest deduction you get to claim on your taxes (actually if this is in place that would not be necessary for primary residences). This is the goverment actually negotaiting a deal with the banks (for the good of the country) to eliminate the interest rates on all current mortgages and re-establish the payments plan (in simple principal only installment terms) for home owners.

    From an economic stimulus perspective I believe this has tremendous impact:

    -It automatically infuses spendable cash in the economy.
    -It reduces the extreme forclosure rate in America.
    -It would reduce individual American anxiety.
    -It would be the proverbial bone for ALL Americans to help swallow the tremendous but necessary $700B bail-out plan.
    -It would also be a 'bone' for the Americans who have managed theirselves well and feel that they have to pay for bad corporate governance and bad individual decisions

    The main downside I see is the banks' ability to collect profit from these vehicles (primary home mortgages). They still collect all other interest (commercial, consumer, home equity, etc.). They also will win in terms of customer loyality.

    I am not an economist but these are my thoughts. I welcome your comments.

    October 15, 2008 at 10:43 am |
  11. Bill - Chicago IL

    STOP DA MADNESS NOW!!!!!!!

    Invest the money into our decrepit infrastructure and employ U.S. citizens in jobs with decent pay and benefits. That'll provide the "foundation of faith" necessary for folks to feel comfortable purchasing "long term" consumables like houses and cars, which in turn will get banks borrowing again.

    October 15, 2008 at 10:11 am |
  12. John

    In 2000 there was a Bill named The Commodity Futures Modernization Act that was passed into law by the Clinton Administration. This Bill allowed Wall Street to do credit default swaps with out any government regulation. This Bill should have never been passed.
    Credit default swaps= $50 to $60 TRILLION from this BILL.
    We know Bill Clinton passed this into LAW, he should be held responsible also!

    October 15, 2008 at 8:44 am |
  13. Will in California

    Who the heck inflated housing prices? I knew quite a while back that home prices were unresonably high and still climbing, just by looking at such modest lokking homes. Now that prices have dropped and settled to a more reasonable price, people who were duped into thinking that their investment would inccrease in value are left with paying for a home which won't reach its value for maybe decades, if at all. Punish ACORN for its bully tactics to get poor people with unstable jobs into bad housing deals with lenders and reduce its power to do so permanently.

    The banking industry has hijacked the country to force the politicians they paid off, err contrbuted to their campaigns, so that those politians can be bailed out later, when in trouble. They are denying states loans that states have always paid back, since states have collateral that the poor don't have, to recupe its loaned money, just to force the fed to bail them out by holding out on lending money for states to coninue to function. If banks won't lend money to states to make a profit, then a national bank for states to depend on should lend states money to reduce thepower and influence that big private banks have on our government

    October 14, 2008 at 10:51 pm |
  14. Gerald J

    The reason this collapse is so difficult to address is that it was created by fraudulent behavior, not merely bad policies. Example: AIG lied about its illegal insurance of speculative document purchases, calling insurance "credit swaps" to avoid the law. Keating gave us the prototype and no one listened. Now we get the big idea. Greed, fraud and criminality created this debacle and there is no easy economic answer to make lies the truth, We have tough years ahead, many tough years ahead,

    October 14, 2008 at 10:42 pm |
  15. Marvin Schepers

    I agree with everything that is said in this article and in the previous comments. However I do not believe that this problem will ever get corrected for the long term, until there are term limits put on congressman so they cannot make a career out of politics.

    October 14, 2008 at 9:39 pm |
  16. Timothy Gibson

    To be honest all I see Congress doing is propping up a failing asset, America. More money is printed to spend on a National Debt. that has gone unchecked for far to long and the value of the America dollar along with the America worker has been kicked to the curb for street sweeping day.

    We the people are not even told of which Banks are currently under investigation by the FBI, which would lead me to believe none of them or that Congress is keeping that from us, the lenders who have a right to know, because money is now being given to those who wallowed to long in the pig pen.

    We will see a false recovery followed by a loud crash as it all comes down around us. Pehaps then people will snap out of their apathy and reclaim America.

    San Diego, CA

    October 14, 2008 at 8:42 pm |
  17. Larry

    So, Mr. Bernanke, why were Fannie & Freddie giving $400 on every mortgage to ACORN?

    October 14, 2008 at 8:10 pm |
  18. Hank Buyze

    Why are we putting the weasles in charge of the hen house.

    These are the same (crooks) people that got us into this financial situation in the first place. Has congress completely lost their minds.

    Why is George Bush leading this charge? He has no credibility at all. He should be on trial for treason along with Dick Cheney.

    This will go down in histrory as the worse administration ever.

    October 14, 2008 at 7:46 pm |
  19. Surafel Melaku

    Seriously!? Wow! I thought you say the same thing in May 2008 about the economy stimulate package. I just don't see how you will solve this crisis by giving free money to CEO's and bankers, they gamble it and they should invest from thier own pocket – same way they did to get up here. If you knock every citizen door-to-door and ask them how much money they need to pay mortgage, electric bills or such, and add those money and you will end up close to $850 Billion and if this administration give that much money, the money goes back to the banks and leanders, people start buying – retail stores will get their cuts and such. But just because $150 Billion dollar difference the Bush admi. want to give to CEO's, big contributers to campaign and such. It's amazing how the people of united state represented by big cooperates and powerful money wise owner. Now i know this is a country if you have money you will buy the whole thing, and it just sad because its America.

    October 14, 2008 at 7:19 pm |
  20. Kay in WV

    I hope you start looking into the pre-Bush era for culprits also. As much as I blame the Bush administration for making this crisis worse, the roots are much deeper into the past.

    October 14, 2008 at 7:05 pm |
  21. JC- Los Angeles

    Ben Bernanke, please shut your mouth; when $700 billion is needed to bail out the connected few, it's the height of hypocrisy for the culprits to expect anyone to listen to their drivel.

    To hear Bernanke now say "our strategy will continue to evolve and be refined" is startling; earth to Ben: no more refining; we need a strategy that works now!

    How on earth did the Federal Reserve, Alan Greenspan and Ben Bernanke think that a post 9-11 spending frenzy was good for America?

    The only thing worse than bad judgement is trying to rationalize it: comments like "history teaches us" and "costs of inertia and inaction can be staggering" are no salve for the wounds caused by worthless leadership.

    It's stunning to see that not one single failed leader has manned up and stepped down; not one; Ben, you might regain some credibility by being the first.

    October 14, 2008 at 6:46 pm |
  22. Scott Fox

    Or even better, DON'T BORROW IT ALL.

    October 14, 2008 at 6:46 pm |
  23. Joseph

    Instead of buying shares in banks, take the money and refinance the "toxic loans" and insure the loans (just like the banks do.) Then: 1) the banks aren't nationalized, 2) the "toxic loans" are removed from the bank books, 3) more people get to stay in their homes with lower payments, and 4) with the loans being changed to non-toxic, banks will begin to lend.

    October 14, 2008 at 6:27 pm |
  24. Sakura

    I want to know why the federal reserves can't find any money in the bailout plan to help struggling small businesses with their payrolls. If these small businesses could get funding, loan, etc. Thes companies would be the one's to start hiring employees immediately.

    October 14, 2008 at 6:21 pm |
  25. Jim

    As someone who has been unemployed & without a paycheck since
    Feb 2007 & who has recieved NO HELP ,NO ECONOMIC STIMULAS CHECK & learned long ago how to survive on next to nothing- You had better learn to do the same very quickly because I for 1 will NOT deal with BANK,CREDIT HENCEFORTH FOREVER. The Banks SCREWED my family back in the 1930's 1980' & Now

    October 14, 2008 at 6:13 pm |
  26. Suze

    I don't understand why instead of giving an almost trillion dollar bailout, couldn't we have just done things like require the banks to lower their interest rates so that people could afford those mortgages and the banks would still make money, just not as much, so they won't be paying their CEOs millions of dollar salaries, but they will still be in business and will get those mortgages repaid, maybe it will take a little longer but in the long run over a longer time the lower interest rates will give them the same profits stretched over more time, and don't banks make enough money and their executives rake in far more than any human being should get paid for any job... I feel no job should pay more than what our president makes a year, and running a bank is so much simpler than running a country that it should be a lot less... then these execs won't feel so much pressure to PROVE THEIR WORTH by these practices that made them a lot of money but made the system unstable... let THEM live within their means and only give out mortages withing buyers means, and we will all live happily ever after.

    October 14, 2008 at 6:12 pm |
  27. Kevin McKinney

    The entire $700 billion of borrowed taxpayer's money should go into bank equity throughout the U.S.A to fund capital projects, both public and private . None of it should go towards sopping up the cesspool left by the gamblers at the Wallstreet casino.
    It is one thing to borrow money to put into lasting assets; it is quite another to borrow money to spend at Walmart to support job creation in China.

    Kevin McKinney

    October 14, 2008 at 5:27 pm |
  28. Scott Fox

    So the institution which caused this crisis, and has taken no responsibility for it, the Federal Reserve, is being tasked with fixing.

    Makes sense.

    October 14, 2008 at 5:01 pm |