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KAI RYSSDAL: I don't know if Senators were paying any attention, but the Chairman of the Federal Reserve gave Congress a poke in the eye today. Ben Bernanke spent his morning with the Joint Economic Committee. We'll get to the meat of what he said in a second, but at one point he was asked why the Fed hadn't done more to fix the housing crisis. Here's what he said.
BEN BERNANKE: Well, the Federal Reserve was acting in its sphere of influence to address financial issues. As I've said, I think housing is very important and we need to address it but, of course, that's the Congress' sphere of influence, not the Feds.
Not my job, right? On the question of what's going to happen with the economy, his answer was fairly predictable.
BERNANKE: Our estimates are that we're slightly growing at the moment, but we think that there's a chance that for the first half as a whole there might be a slight contraction.
The Fed chief said a recession's possible, but he wouldn't take the bait when lawmakers asked about more rate cuts. He got some questions about Bear Stearns, too, and the $29 billion the Fed offered to help JPMorgan buy out its troubled competition.
BERNANKE: We did not bail out Bear Stearns.
Might have been the most emotion he showed all day.
BERNANKE: Anybody who wants to borrow for a mortgage for a house or for other purposes, anyone who has a investment account with stocks and other assets in it, anyone whose company wants to acquire capital to expand employment, needs to have a healthy, functioning financial system. What we did, always in my mind was that what was the best thing for the American public.
Bernanke didn't say it outright, but one of the reasons the Fed helped stop Bear Stearns from going under? Bear was heavily involved in a peculiar kind of financial instrument called "credit default swaps." They made the bank not too big to fail but, through those swaps, too intertwined with the rest of the financial system for the Fed to take the risk of it failing. Let me take you back to yesterday's show, and a conversation I had with Bob Moon about default swaps.
BOB MOON: They were invented a few years back so banks and bond holders, the investors, could make sure that they got paid back when companies failed to pay their loans. So in a way, you could call this insurance.