Roger Ferguson, Former Fed Vice Chairman Analyzes the Credit Crunch
Monday, October 06, 2008SUSIE GHARIB: More analysis now on the worldwide credit crisis from a former high-ranking Federal Reserve official. Earlier today I talked to Roger Ferguson, former Fed vice chairman and current chief executive of TIAA-CREF, the financial giant that specializes in retirement funds for teachers. I began by asking him what needs to be done now to get the financial system back to normal.
ROGER FERGUSON, FORMER VICE CHAIRMAN, FEDERAL RESERVE BOARD: Well, the challenge to the financial system today is that there is an absence of credit and credit availability, and there's also an absence of confidence. And clearly the package that was passed by Congress and signed into law, plus a number of other actions that the Fed has taken are all aimed at trying to increase the amount of credit available in the system, and by doing that, increase the amount of confidence available in the system.
GHARIB: Mr. Ferguson, some economists, I'm sure you have heard this, are saying that the federal reserve should take immediate action and cut short- term interest rates in a big way, something like half a percent. What are your thoughts on that, would that help get the credit going again?
FERGUSON: I'm not in a position to really speculate on what the Fed might do. I will say they've proven themselves quite adept and flexible at using a full range of tools, including those that deal directly liquidity as well as those that deal with the price of money, the interest rate.
GHARIB: What about the suggestion that the world's major central banks should work together and coordinate interest rate cuts worldwide, given that the credit crisis is now a global problem?
FERGUSON: Many economies are confronting the same sorts of challenges. And so the range of policy solutions in all of these central banks will probably move in the same direction. Whether or not that is the result of coordination or decision-making country by country, is in some sense irrelevant. The goal is to get to the right outcome for each jurisdiction.
GHARIB: Now the central problem here is still falling house prices. I mean, what measures need to be taken to turn around the housing sector and home prices, is there anything that can be done there?
FERGUSON: I do not think there is a magic bullet. I don't think there is a single action that the government could take that will do that. I think what the government is doing is attempting to restore confidence by providing liquidity that will allow the credit markets to function. And as the credit markets start to function more smoothly, individuals will find that it is easier to get mortgages again, for example, and that may be part of the solution.
GHARIB: Mr. Ferguson, you worked many years at the Federal Reserve. If you were still working at the central bank, what would you do to stabilize the economy and the banking sector?
FERGUSON: Actually, I give my former colleagues quite high marks. I think they have proven themselves to be very flexible. They have used a number of tools that existed when I was at the Fed. And they have used a number of new tools that we had only thought about at the Fed.
GHARIB: The central question that everyone wants an answer to is, when is this economic slump going to be over? What do you think? FERGUSON: It would be nice to say that we have turned the corner and we are starting to come out of it. I am afraid that I cannot subscribe to that, for the point that you have raised, this is very much a slump that started in the housing sector. We see some early glimmers of hope in some specific house markets, for sure. But I'm afraid that for my standpoint, I think we may have several months to go before we really can start to blow the all clear whistle.
GHARIB: Mr. Ferguson, your firm invests the pensions of millions of Americans. What is your sense of investor sentiment and what advice would you give to people out there who are so worried right now?
FERGUSON: The sentiment is one of great uncertainty, that's what we are picking up. The advice that we tend to give people is keep the long view. Do not panic. Seek objective advice. And remember, the fundamentals mainly deal with diversification of a portfolio.
GHARIB: Mr. Ferguson, thank you so much for your time, we really appreciate it.
FERGUSON: Susie, thank you for inviting me on.
