Fallout: The Financial Crisis

Bernanke: Broaden financial oversight

Amy Scott Aug 22, 2008
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Fallout: The Financial Crisis

Bernanke: Broaden financial oversight

Amy Scott Aug 22, 2008
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TEXT OF STORY

Kai Ryssdal: Of all the things to do on a late Friday in the summertime, digging into the details of the economy’s probably not high on most people’s list. But that’s the Fed Chairman’s job. So, Mr. Bernanke found himself up in Wyoming this week at an annual gathering of the economic best and brightest.

In his speech today he said he figures inflation going to ease up over the next year or so. That’d be handy, if it works out, because it would take a whole lot of pressure off him to raise interest rates. It’s become something of a trend for Mr. Bernanke to use his Jackson Hole speech to set the economic mood. Marketplace’s Amy Scott reports.


Amy Scott: When Ben Bernanke addressed the same crowd of central bankers and economists last year, as he put it, the financial storm had just reached gale force. “It is not the responsibility of the Federal Reserve,” he said, “Nor would it be appropriate to protect lenders and investors from the consequences of their financial decisions.”

Since then, of course, the Fed has essentially bailed out Bear Stearns, injected investment banks with emergency cash and helped prop up mortgage giants Fannie Mae and Freddie Mac. Today, Bernanke spent much of his time defending the Fed’s intervention. Economist John Makin was there. He says when circumstances changed, Bernanke changed his mind.

John Makin: In effect, the chairman was saying to people who were criticizing the Fed’s role, look we faced a problem that could’ve severely jeopardized the global financial system, and so we had to act.

Today, Bernanke acknowledged the so-called moral hazard of government intervention. Susan Wachter teaches finance at the Wharton School. She says if investors and lenders believe the Fed will bail them out, they’re likely to take even bigger risks.

Susan Wachter: The answer at this point has to be to rebuild the structure so that the risk of the behavior that led to the crisis is lessened.

In his speech, Bernanke laid out some quite technical ways to discourage excessive risk-taking. And now that the government has come to the rescue, he says regulators have to examine the whole financial system.

I’m Amy Scott for Marketplace.

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