Ben Ber­nanke, in new memoir, re­calls Lehman’s ‘sur­real’ fail­ure


Ben Ber­nanke re­calls the Septem­ber week­end in 2008 when reg­u­la­tors sought des­per­ately but in vain to save the in­vest­ment bank Lehman Broth­ers as a “ter­ri­ble, sur­real mo­ment.”

“We were star­ing into the abyss,” the U.S. for­mer Fed­eral Re­serve chair­man writes of the tense ne­go­ti­a­tions, led by Ti­mothy Gei­th­ner, then head of the New York Fed, and Henry Paul­son, then Trea­sury sec­re­tary.

Reg­u­la­tors hoped to find a buyer for Lehman and avert what would be­come the largest bank­ruptcy in U.S. history, which ig­nited the worst fi­nan­cial cri­sis since the Great De­pres­sion.

A “blur” is how Ber­nanke de­scribes the events.

Ber­nanke re­calls the episode in a memoir, “The Courage to Act: A Memoir of a Cri­sis and Its Af­ter­math,” sched­uled to be pub­lished Mon­day. The As­so­ci­ated Press ob­tained and bought an early copy.

Top ex­ec­u­tives of ma­jor banks took part in the marathon talks with reg­u­la­tors. Ber­nanke fol­lowed the talks from his Washington of­fice, con­fer­ring on speaker phone with of­fi­cials in New York, munch­ing on sand­wiches and tak­ing cat­naps on the bur­gundy leather sofa in his of­fice.

“All we can do is put foam on the run­way,” Ber­nanke quotes Gei­th­ner as say­ing, de­scrib­ing the ef­fort to pre­vent a fire af­ter a jet­liner crash-lands.

Ber­nanke’s memoir, which he be­gan af­ter leav­ing the “Fed” in Fe­bru­ary 2014, re­volves around the cri­sis in which the gov­ern­ment took over mort­gage giants Fan­nie Mae and Fred­die Mac and pro­vided hun­dreds of bil­lions in aid to the big­gest U.S. fi­nan­cial in­sti­tu­tions.

He notes that the tax­pay­er­pro­vided bailouts were widely un­pop­u­lar. He would wince, he said, when he saw bumper stick­ers say­ing, “Where’s my bailout?”

But the book amounts to a de­fense of the bailouts and the Fed’s res­cue pro­gram for the econ­omy. Late in 2008, the Fed cut its key short-term rate to a record low near zero, where it re­mains to­day, to sup­port the econ­omy. It also launched a bond-buy­ing pro­gram to try to drive down long-term bor­row­ing rates.

Ber­nanke ar­gues that with­out the gov­ern­ment’s ex­tra­or­di­nary as­sis­tance, the Great Re­ces­sion, as se­vere as it was, would have been worse.

“The jour­ney was nerve-wrack­ing,” he writes. “But most of my col­leagues and I were de­ter­mined not to re­peat the blun­der the Fed­eral Re­serve had com­mit­ted in the 1930s when it re­fused to de­ploy its mon­e­tary tools to avoid the sharp de­fla­tion that sub­stan­tially wors­ened the Great De­pres­sion.”

Ber­nanke says the Fed’s key goals were to lower in­ter­est rates to help the econ­omy, un­freeze credit in the bank­ing sys­tem, res­cue ma­jor fi­nan­cial firms and con­duct “stress tests” of the big­gest banks to re­as­sure in­vestors.

The book traces Ber­nanke’s life from his small-town roots in Dil­lon, South Carolina, to Har­vard and Prince­ton univer­si­ties to chair­man of the Fed.


This Jan. 16, 2014 file photo, then U.S. Fed­eral Re­serve Chair­man Ben Ber­nanke speaks at the Brook­ings In­sti­tu­tion in Washington, D.C.

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