Reflective Bernanke Likens Financial Crisis to Car Crash

Manuel Balce Ceneta/APOutgoing Federal Reserve Chairman Ben Bernanke speaking Thursday at the Brookings Institution.
By MARTIN CRUTSINGER

WASHINGTON -- In his final public appearance as chairman of the Federal Reserve, Ben Bernanke took a moment to reflect on the 2008 financial crisis and compared it to surviving a bad car crash.

During an interview Thursday at the Brookings Institution, Bernanke recalled some "very intense periods" during the crisis, similar to trying to keep a car from going over a bridge after a collision.

The government had just taken over mortgage giants Fannie Mae and Freddie Mac. Lehman Brothers had collapsed. He recalled some sleepless nights working with others to try and contain the damage.

"If you're in a car wreck or something, you're mostly involved in trying to avoid going off the bridge. And then, later on, you say, 'Oh my God!' " Bernanke said.

Bernanke will leave the Fed on Jan. 31 after eight years as chairman. His successor, Janet Yellen, will take over Feb. 1.

In his appearance, Bernanke defended the Fed's efforts during the crisis,
which included massive purchases of Treasury bonds to push long-term interest rates lower and forward guidance to investors about how long the Fed plans to keep short-term interest rates near zero.

Critics have warned that those efforts pose great risks for higher inflation or future financial market turmoil.

But Bernanke says there has not been a problem with inflation, which is still running well below the Fed's 2 percent target.

Should inflation start to be a problem as the economy starts growing at faster rates, the Fed "has all the tools we need to manage interest rates" to keep inflation from getting out of hand, he said.

"Inflation is just not really a significant risk" from the bond purchases, Bernanke said.

Bernanke said the central bank was aware of potential threats to financial market stability from its massive bond holdings and is monitoring markets very closely to spot any signs of trouble. He said this threat was the one "we have spent the most time thinking about and trying to make sure that we can address" should the need arise.

But he said any concerns about financial stability didn't outweigh the need to keep providing support to the economy.

The Fed announced last month that it would slightly reduce the size of its bond purchases in January from $85 billion per month down to $75 billion. And it said it would likely make further reductions at upcoming meetings, if the economy keeps improving.


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Don Adair

Bernanke hasn\'t done too bad, all things considered. He inherited a terrible situation from Greenspan and in spite of widespread criticism he seems to have smoothed things out a bit. His enormous bond-buying program is more than a little worrisome as a trigger for higher inflation, but so far it seems to have helped the economy to get rolling again. Unemployment may still be a problem, but there will continue to be lots of unemployment so long as the unemployed continue to get paid reasonably well for being unemployed. They clearly learn who to vote for to keep their dollars rolling in. Anyway, Bernanke has not been too bad. We must hope that Yellen does as well or better, without requiring a continued devaluation of the U.S dollar.

January 16 2014 at 11:13 PM Report abuse rate up rate down Reply
betty_brock

Now we have a train wreck.

January 16 2014 at 8:13 PM Report abuse -2 rate up rate down Reply
Valerie

A car crash, huh?? Uncle Ben must have thought he was driving in a demolition derby. That's the right explanation for the mess he has created.

Anyone, (who is getting hammered by Benny's zero interest rates on their savings) will read this interview and start fantacizing about running him over with their car.

"The fed has all the tools they need to fight inflation". What a sick joke.

January 16 2014 at 7:38 PM Report abuse +1 rate up rate down Reply
jdykbpl45

Bernake got drunk and drove off the fiscal cliff!

January 16 2014 at 3:04 PM Report abuse +1 rate up rate down Reply