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.