October 14th, 2008
04:16 PM ET

Bernanke abandons the back room

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Diane Swonk
Senior Managing Director & Chief Economist, Mesirow Financial

In a ground-breaking move, Chairman Bernanke appealed directly to Wall Street by preempting an official announcement (due out this morning), and explaining his intent to directly infuse banks with capital, in the op-ed pages of the Wall Street Journal.

Above him on the page was Senator Chuck Schumer's support of the Fed-Treasury plan, which is expected to include $250 billion in preferred share purchases in our largest bank and bank holding companies (Morgan Stanley and Goldman Sachs included).

What is so remarkable about this effort is the way in which it was communicated. The Fed and the Treasury have learned that back room deals, negotiated on an ad hoc basis, added more confusion than clarity about the state of the financial system, and ultimately undermined, instead of reinforced, investor confidence. The initial failure to accept the Paulson deal was especially costly in terms of the public's confidence in our financial leadership.

So, Ben adapted. He and his friends at the Treasury kept us abreast of the events unfolding, both at home and abroad, to more effectively unfreeze credit markets over the last week. Talks with bankers and their governments were confirmed before "official" agreements were announced. And then, Ben circumvented the speculative media and made his appeal directly to the public and investors in the pages of the Wall Street Journal.

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Filed under: Diane Swonk • Economy • Finance