Federal Reserve Chairman Ben Bernanke is providing some answers (sort of) about the current worldwide state of economic turmoil. Today USA Today published a conversation with Bernanke ahead of his speech on the economy at Moorehouse College.
In answer to the question of how we got into this economic mess, he says: “One important consequence was a housing boom in the United States, a boom that was fueled in large part by a rapid expansion of mortgage lending. Unfortunately, much of this lending was poorly done, involving, for example, little or no down payment by the borrower or insufficient consideration by the lender of the borrower’s ability to make the monthly payments. Regulators did not do enough to prevent poor lending, in part because many of the worst loans were made by firms subject to little or no federal regulation.” But Bernanke doesn’t mention the failure of the Fed to oversee how ratings agencies treated the newly-created mortgaged-backed securities.
Bernanke also mentions the Fed’s efforts to restore stability in the housing market by buying mortgage-backed securities. The Fed has gone on a buying spree of late of Treasuries, on March 18 announcing a plan to purchase up to $300 billion longer-term Treasury securities over the next six months. (In a Trendlines story for the May issue of Futures, online April 24, we discuss the Treasuries buyback program with industry experts who note among other things that the program is keeping a bid in the market.)
He also discussed the government’s bailout of AIG, one of the “too big to fail” institutions, saying that ”the federal regulators urgently need a new set of procedures for dealing with a complex, systemically important financial institution on the brink of failure. ” In all, Bernanke didn’t make any earth-shattering remarks in his speech, concluding by saying that he was “fundamentally optimistic” about our economy. Glad someone is.
Tags: Ben Bernanke, economy, Federal Reserve
[...] Chairman Ben Bernanke in a speech he made today at Morehouse College cited the reasons for the government bailout of AIG. While he provided an exhaustive list, his arguments were not [...]