What it was like to head the Fed during the 2008 meltdown

In “The Courage to Act,” former Federal Reserve chairman Ben Bernanke writes that the global economic collapse of 2008 could have resulted in a crisis akin to 1929 had he, his colleagues and policymakers around the world acted differently. He joins Judy Woodruff to discuss his memoir of that turbulent time and its aftermath.

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    He took on perhaps the most important job in the financial world a year before a global economic collapse.

    Former Federal Reserve Chairman Ben Bernanke reflects on that turbulent time in a new book, "The Courage to Act: A Memoir of a Crisis and Its Aftermath."

    Ben Bernanke, welcome to the program.

  • BEN BERNANKE, Former Chairman, Federal Reserve:

    Thank you for inviting me.


    So, you write in this remarkable book that takes us inside not only your life, inside the Fed, a place we don't hear about very often, that if you and your colleagues had not acted as you did in 2008, that we could have seen something like 1929 again.

    Do you really believe that might have happened?


    Well, nobody can know for sure, but, as an academic, I studied the Great Depression. I studied how financial panics affect the economy. And I was very concerned about that, you know, even before Lehman Brothers, even before the financial panic hit its peak.

    But after Lehman Brothers, and when the financial panic accelerated, we saw just a tremendous drop-off in the economy, as sharp as the beginning of the Great Depression. So, I really do believe that it would have been a very, very serious and protracted downturn if the financial crisis had not been arrested.


    So, the title — in the title is "The Courage to Act."

    But I guess one question is, did you and your colleagues really have a choice? If things were about to fall apart, what else could you have done?


    Well, the title refers to policy-makers around the world.

    It was a very chaotic situation, a very scary situation, big, high-stakes decisions and in a very uncertain and politically difficult environment. And people — policy-makers could have been passive. That was what some commentators were urging, for example, that we should just step back and let the market take care of it.

    So it was very difficult to do that. And I'm glad to have been part of a Fed and Treasury team that took the action that was needed.


    One of the goals of what happened was to make sure there would no longer be this concept of too big to fail.

    But a lot of people look at this today and they say the banks have just gotten big, big, bigger in the ensuing seven years. And the sort of cynical view is, look, if one of these big banks went under, the government would have to bail them out again. Is that really where we are again?


    Well, too big to fail remains an issue, but we're making progress, I think.

    First of all, with the post-crisis reforms, banks have to hold a lot more capital, that is to say, be less levered, hold more equity than they did before the crisis. And so it would take a lot more to put a big bank on the verge of failure. That's the first thing.

    Second thing, the big banks are under much tighter supervision now and being watched more carefully than they were. And, finally, Dodd-Frank gave the regulators the power, the tools to disassemble a big bank or a big financial institution in a way that didn't bring down the rest of the financial system.

    And we're already seeing that some of the big banks are — their credit ratings are being reduced, because the credit rating agencies say they can no longer count on government help. So, I wouldn't say the problem is solved, by any means, but it's very much in the — under the radar, and it's being paid attention to and progress is being made there.


    A lot of conversation this week, Ben Bernanke, about whether financial executives should have gone to jail. You have been asked about it. What do you think?


    Well, what I was saying there was, I was making a comment on the Department of Justice strategy.

    So, the Fed is not an enforcement agency. That wasn't our call. So, the Department of Justice, the strategy they followed, at least initially, was to go after institutions and to penalize the big banks billions of dollars for their misbehavior.

    And my reaction to that was that, you know, corporations are legal fictions. They don't themselves take legal or illegal actions. It's individuals who make those decisions. And I would have preferred to have seen the strategy been to go and determine who — what individuals were responsible. And then we would have found out more, I think, and maybe been more accountable that way.


    But that wasn't done. Do you believe you know who should have been held responsible, the individuals?


    No, I don't.

    I mean, at least to be investigated. We saw some cases where people have gone to jail for market rigging and other kinds of blatant things. But it's a fine line in finance between being reckless and irresponsible and breaking the law. And I think those situations needed to be investigated.


    Aside from the executives at the big banks, just in terms of ordinary Americans, people who go about their daily lives, you hear so much conversation today about how, yes, the economy is growing again, yes, it's come back in many ways we measure, but still people express a feeling of anxiety, of worry that the economy hasn't taken off, it hasn't soared the way it did before.

    How do you — what do you say to people who are out there and still feeling very insecure?


    Well, one of the issues is that the economy isn't serving the whole public, the whole population equally.

    I mean, obviously, a lot of the benefit of the growth and recovery has gone to the upper — more upper-income class. And that was, in some sense, predictable, because we have been seeing greater inequality across the population for now 30, 35 years, at least. It's a very long-term trend.

    It's a very difficult trend to correct. I don't think it has much to do with the Fed or the financial crisis. It's just a very long-term trend that arises from globalization, from technical change, from insufficient skills. So, it's understandable.

    I mean, I understand exactly what the concern is, but it's not something that the Fed really had much control over.


    The last thing I want to ask you about is Congress. You do refer in the book to dealing with members of Congress, being frustrated, in many cases, because they were telling you behind the scenes that they were supportive, but in public they weren't able to do that, frustration about ideology.

    Today, we, of course, see the big development among House Republicans not able to agree on their new leadership. How do you see the Congress? Is it — and this sense of ideology, in your view, going to stand in the way of what's in the best interest for the country, whether it's far left or far right?


    Yes, I think it could.

    Ideology leads to talking points and allegiances, and that, in turn, kind of blocks out subtle discussions of complicated issues. It blocks out cooperation across the aisle, working together to solve problems.

    I'm hopeful that, you know, as we move forward, that more politicians will look to the center and look to try to work across the aisle to address some of the real serious issues, including the one of inequality that you raised.


    What do you think the cost of this is?


    Well, it means that our political system is paralyzed, and some important steps that could be — make our economy stronger, and more efficient and more equitable will not get taken, or at least not get taken a while.


    And the consequence of that is, things don't get done.


    It's a little bit self-reinforcing, because, if these things don't get done, then the public becomes even more disillusioned, and that feeds back into extreme and partisan politics.


    Well, Ben Bernanke, there is much more to talk to you about. The book is really a remarkable one, looking at your life and your experiences at the Fed. It's "The Courage to Act: A Memoir of a Crisis and Its Aftermath."

    Ben Bernanke, we thank you.


    Well, thank you.

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