Greatest Economic Boom in
History Began Last Night
In the view of John Gelles, tonight's 60
Minutes marked the turning point in the current economic
"mess".
If tomorrow the President explains a sensible support for
small business, we will be off and running in the
greatest economic boom in history.
Bernanke hit the home run: "we need only the political will."
That "WILL" required "PLAIN TALK"
on money and business and credit and the banks.
Bernanke supplied it!
From CNN on line:[Teachable moment
exception to copyright is effective for this non-profit
distribution of material offered for free already on the
Internet, and further distributed by this commentator.]
NEW YORK (CNNMoney.com) --
Federal Reserve Chairman Ben Bernanke said on Sunday that
government officials are laying the groundwork for an
economic revival and that a "depression" can be
avoided - acknowledging however that a full recovery will
take time and that there are still obstacles.
"We're working on it. And I do think
that we will get it stabilized, and we'll see the
recession coming to an end probably this year. We'll see
recovery beginning next year. And it will pick up steam
over time," Bernanke said in a rare public interview
airing on "60 Minutes," according to a
transcript released by CBS.
When asked about the risks of a "new
American depression," Bernanke responded, "I
think we've averted that risk. I think we've gotten past
that." Key to a full recovery, said Bernanke, is
stabilization of the banking system -- an argument the
Fed chairman has made repeatedly.
Bernanke also defended government actions taken thus far,
as well as the decision last fall to let Wall Street firm
Lehman Brothers fail while at the same time stepping in
to save insurance giant American International Group.
Bernanke said the Fed did not have powers to save Lehman
because the firm did not have sufficient assets to post
as collateral. In contrast, AIG (AIG, Fortune 500) has
vast insurance operations that it can sell off to repay
government loans.
AIG has since received $170 billion in bailout funds, in
part to cover its obligations to banks worldwide. These
banks had taken out insurance from AIG against the
default of risky bonds. AIG collected hefty premiums from
those contracts, but did not have sufficient reserves to
pay out claims.
Though Bernanke said he understands public outrage over
using taxpayer dollars to prop up AIG, which made
"unconscionable bets," he thinks the government
had little choice.
"At that period, I felt we were pretty close to a
global financial meltdown," Bernanke said.
Bernanke indicated that similar decisions may be
necessary with other big financial institutions, which
are now undergoing "stress tests" to evaluate
their ability to withstand extreme financial shocks.
He made clear he would seek to avoid massive bank
failures - but not that he would seek to prop up sick
banks indefinitely.
"They are not going to fail. But what we can do,
should it be necessary, is try to wind it down in a safe
way. So, for example, in the case of AIG, we've prevented
a bankruptcy, because of the chaos that would create. But
we're also demanding that AIG divest itself, sell off its
subsidiaries, and use the proceeds to pay back the
government."
Bernanke, from a modest background in Dillon, S.C., said
his chief aim in focusing on the financial sector is to
ultimately help the economy at large. "I've never
been on Wall Street. And I care about Wall Street for one
reason and one reason only - because what happens on Wall
Street matters to Main Street."
Meanwhile, Bernanke indicated some government efforts are
already paying off, seen in lower mortgage rates, stable
money-market funds and more business lending.
The interview comes at a fragile time for the U.S.
economy. Though the U.S. stock market soared 10% in the
past week and several economic readings showed some
firming, there still is no shortage of anxiety. At issue:
It is still unclear how the financial sector bailout
strategy will address the problems caused by mortgages
weighing down bank balance sheets. There is also concern
about the nation's debt burden because of the $787
billion economic stimulus package enacted last month and
other federal spending programs. And job losses and
foreclosures continue to mount.
Still, Bernanke sought to look past these immediate
problems. "I just have every confidence that as we
get through this crisis, that our economy will begin to
grow again, and it will remain the most powerful and
dynamic economy in the world."
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