Tags: ben bernanke | 2008 | financial | meltdown

Documents Show Bernanke Had No Grasp of 2008 Financial Meltdown

By Drew MacKenzie   |   Friday, 21 Feb 2014 01:20 PM

The release of thousands of federal documents from 2008 show that the then head of the Federal Reserve had no real concept of the magnitude of the financial crisis facing the U.S. economy, The Wall Street Journal reported.

Just two days after the banking giant Lehman Brothers collapsed that year, Fed Chairman Ben Bernanke gave his monetary decisions a big thumbs up, according to the transcripts.

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“I think that our policy is looking actually pretty good," Ben Bernanke said of the level of interest rates at a closed-door Fed policy meeting in September, 2008. "Our quick move early this year, which was obviously very controversial and uncertain, was appropriate."

Earlier that year, the Fed had cut interest rates despite objections that it could lead to an increase in inflation. However, the measure did not nearly go far enough to prevent the economy disintegrating within days, which resulted in the administration having to step in and bail out the banks.

The Fed, now chaired by Janet Yellen, released the transcripts from eight formal and six emergency policy meetings it had staged as the country’s financial woes worsened, pushing the United States into an extended depression.

At the September meeting, Bernanke had decided to keep the short-term interest rates at 2 percent while saying, “It is simply premature. We don't have enough information."

Yellen, who was then president of the Fed’s San Francisco regional bank, reluctantly agreed with the decision while warning, "I am very concerned about downside risks to the real economy and think that inflation risk is diminished."

But two days later the stock market began to implode, and the Fed was forced to bail out insurance giant American International Group. Bernanke and Treasury Secretary Henry Paulson then went to Congress and called on lawmakers to bail out the U.S. banking system.

Within weeks, the Fed had slashed interest rates to zero, moved to safeguard several banks like Citigroup, started buying private mortgage-backed securities, and set up programs to prop up money-market funds.

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