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Bernanke Says He Failed To See Financial Flaws

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http://www.nytimes.com/2010/09/03/business/03commission.html?_r=1&ref=business

Ben S. Bernanke, who told Congress in 2007 that the subprime mortgage crisis was “likely to be contained,” said Thursday that he had failed to recognize flaws in the financial system that amplified the housing downturn and led to an economic disaster.

Under pointed but polite questioning from members of the Financial Crisis Inquiry Commission, Mr. Bernanke, the chairman of the Federal Reserve, signaled that the central bank was eager to embrace its expanded powers under the Dodd-Frank financial regulatory law that President Obama signed in July.

Mr. Bernanke spoke favorably of forcing huge banks to hold much more capital, particularly if they were systemically important — so much capital that being big would be costly. He declared that “for capitalism to work,” executive pay had to be linked to performance. And he said Americans were justifiably angry that bankers “who drove their companies into a ditch walked off with lots of money.”

He reiterated that the Fed could not have prevented Lehman Brothers from declaring bankruptcy on Sept. 15, 2008, the financial crisis’s nadir moment. But he said he might have unwittingly “supported this myth that we did have a way of saving Lehman,” by failing to make it clear to Congress at a hearing shortly after the bankruptcy that the Fed did not have other options.

“This is my own fault, in a sense,” Mr. Bernanke said, adding that he was worried at the time about contributing to panic in the markets. “I regret not being more straightforward there.”

Mr. Bernanke said that when he made his remarks in 2007 he thought the subprime problems were “manageable.”

“What I did not recognize was the extent to which the system had flaws and weaknesses in it that were going to amplify the initial shock from subprime and make it into a much bigger crisis,” he said.

While Mr. Bernanke stuck with his long-held stance that the Fed had not aided the housing bubble by keeping interest rates too low for too long in 2002-4, he embraced the view of Gary B. Gorton, an influential Yale finance professor.

Professor Gorton has compared the crisis to a classic bank run, but with the “banks” in this case being short-term wholesale financing markets — a loosely regulated, uninsured system known as shadow banking.

Mr. Bernanke offered an analogy of his own, likening the housing crisis to E. coli bacteria that can have deadly consequences when passed along through a vulnerable food safety system.

“E. coli got into the food system, and it created a much bigger problem,” he said. “There was an awful lot of dependence on short-term, unstable funding, which is analogous to the deposits in banks before the period of deposit insurance.”

Asked about the role of financial innovation in the economy, Mr. Bernanke, said that “innovation is not always a good thing.” Some innovations have unpredictable consequences, are used primarily “to take unfair advantage rather than to create a more efficient market,” and create systemic risks, he said.

In a 2002 speech when he was a Fed governor, Mr. Bernanke argued that central banks should not try to use monetary policy to pop asset bubbles. As part of his nearly three hours of testimony on Thursday, Mr. Bernanke held to that view, but said that at the time he had called for careful supervision and regulation to maintain financial stability.

“We didn’t do that,” conceded Mr. Bernanke, who became Fed chairman in 2006. “Going forward, we need to be able to do that.”

As he did in an address to the American Economic Association in January, Mr. Bernanke argued against the perspective that the Fed stood by passively, “not recognizing the obvious,” as housing prices soared.

“As of 2003 to 2004, there really was quite a bit of disagreement among economists about whether there was a bubble, how big it was, whether it was just a local or a national bubble,” Mr. Bernanke testified.

He added: “By the time it was evident that it was a bubble and that it was going to create risk to the financial system, it was rather late to address it through monetary policy.”

Mr. Bernanke said the most important lesson of the crisis was the need to end the “too-big-to-fail problem,” a view echoed by Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, who also testified Thursday.

Bernanke is an idiot.

He's admitting that he failed to grasp is that a micro economic problem ie subprimers defaulting could create a major macro economic problem. The arrogance clearly was loads of poor people defaulting wasn't going to cause the clever rich people on Wall Street a problem. God we are lucky to have such talented people in charge.

It's amazing how the "experts" are blinded by there own stupidity.

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http://www.nytimes.com/2010/09/03/business/03commission.html?_r=1&ref=business

Bernanke is an idiot.

He's admitting that he failed to grasp is that a micro economic problem ie subprimers defaulting could create a major macro economic problem. The arrogance clearly was loads of poor people defaulting wasn't going to cause the clever rich people on Wall Street a problem. God we are lucky to have such talented people in charge.

It's amazing how the "experts" are blinded by there own stupidity.

He should resign. Sounds like he was as thick as Brown who also did not see the turd approaching the fan. These gentlemen are too academic for the job IMO.

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he should have read the newspapers, rather than having 5 aids telling him what the papers were saying about A: his haircut, and B: about his helicopter scenario.

ALL these guys, including government are way out of touch.

A few feelers out in 2005/6 would have revealed the mortgage scams, which they are supposed to regulate....or DID he know and was told to ignore?

he wont reveal that...he is sufficiently featherbedded to take whatever needs to be taken.

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Bernanke is using the Tony Blair technique of admitting small errors while concealing gigantic ones.

What is impressive is that the bunch of crooks whom surround him have done nothing and will do nothing about it.

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he should have read the newspapers, rather than having 5 aids telling him what the papers were saying about A: his haircut, and B: about his helicopter scenario.

ALL these guys, including government are way out of touch.

A few feelers out in 2005/6 would have revealed the mortgage scams, which they are supposed to regulate....or DID he know and was told to ignore?

he wont reveal that...he is sufficiently featherbedded to take whatever needs to be taken.

They're not outof touch they are utterly ignorant, know nothng about business or how to run an economy based on business, I bet they still have no clue of how much damage they have already done to the bedrock of any functioning economy - all they can do is look the other way and paper over the cracks whilst the foundatins continue to be undermined.

this sied of the pond we had a baking insider warning, directly about the way Northern Shithouse were operating and King accused them on of not understanding banking, few years later bank run.

Edited by OnlyMe

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Bernanke is an idiot.

He's admitting that he failed to grasp is that a micro economic problem ie subprimers defaulting could create a major macro economic problem. The arrogance clearly was loads of poor people defaulting wasn't going to cause the clever rich people on Wall Street a problem. God we are lucky to have such talented people in charge.

It's amazing how the "experts" are blinded by there own stupidity.

Yeah, strange that when you are rolling in it, your mates are rolling in it and the media is bought and paid for by people who are rolling in it, you are not going to ask serious questions about where it comes from..

Especially when all this stuff about 'efficient markets' gives you a perfect intellectual fig leaf to do nothing.

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Bernanke is using the Tony Blair technique of admitting small errors while concealing gigantic ones.

What is impressive is that the bunch of crooks whom surround him have done nothing and will do nothing about it.

Nicely sums up the global state of affairs.

I see just about every institution as corrupt these days. An honest politician or businessman has no chance in the slime pit and if they are uncorrupted going in they will be corrupted within days of starting.

We are at a place not dissimilar to the early part of the 17th Century when corruption was endemic and the only way to sort it was to clear the lot of them out.

Edited by Realistbear

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They're not outof touch they are utterly ignorant, know nothng about business or how to run an economy based on business, I bet they still have no clue of how much damage they have already done to the bedrock of any functioning economy - all they can do is look the other way and paper over the cracks whilst the foundatins continue to be undermined.

this is true, but of course, THEIR business is the Banking business....its all about money....they say they couldnt rescue Lehmans, because it would have been illegal to have done so...but why was it NOT illegal to rescue the others?

We dont know...I dont suppose there is a real single reason behind it all...but business to them is the same as the business we see on Bloomberg...it bears nothing to reality of say a burger restaurant.

It looks instead at the RISKS the business is dealing in from the bankers point of view. This means that it is looking at the values of "instruments" generated out of these risks....not the businesses themselves, but the value of the BETS put on the businesses.

THAT is the job of the central bankers. To look after the money THEY issue.

NOT businesses.

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I don't think history will look favourably on anyone (especially those in power) who said they failed to see it coming.

That somewhat depends on who writes the history.

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Has anyone written to Bernanke to tell him there's another one coming? If he couldn't see the last one, he sure as hell isn't going to see the next big one he's stoking up. Why he and Merv the Swerve are still in their jobs is beyond a joke.

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Yeah, strange that when you are rolling in it, your mates are rolling in it and the media is bought and paid for by people who are rolling in it, you are not going to ask serious questions about where it comes from..

Especially when all this stuff about 'efficient markets' gives you a perfect intellectual fig leaf to do nothing.

LOL - this is the truth. Bernanke is not an idiot at all. He is rich and laughing at everyone, partiulalry those dumb enough to believe what they read in the press....

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Has anyone written to Bernanke to tell him there's another one coming? If he couldn't see the last one, he sure as hell isn't going to see the next big one he's stoking up. Why he and Merv the Swerve are still in their jobs is beyond a joke.

top point.

course, he would be too busy to look up from his enquiries and testmonies on why he missed it first time.

He is a 100% rear view mirror driver.

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Has anyone written to Bernanke to tell him there's another one coming? If he couldn't see the last one, he sure as hell isn't going to see the next big one he's stoking up. Why he and Merv the Swerve are still in their jobs is beyond a joke.

He's a financial genius, why should he take advice from anyone else? :ph34r:

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If you are going to call people stupid and an idiot it helps if you know the difference between 'there' and 'their'.

I see the grammar police are out again.

Typing too fast and not thinking that's all, although I suppose it's close to failing to spot the biggest financial collapse in global history.

In the great list of being an idiot:

1 - Not spotting the warning signs over a global financial collapse.

2 - Getting there and their mixed up.

I like your context.

For true greatest I now only have to miss an obvious financial collapse.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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