Federal Reserve Chairman Ben Bernanke suggested that the current recession should come to an end this year and a recovery will begin early next year, according to an interview he did with 60 Minutes.
In the interview Bernanke reiterates the key to a recover is stabilizing the financial and banking systems. He also believes that through the efforts of the Federal Reserve a depression will be adverted and that the Feds main focus is to get the financial system working properly again.
Bernanke became the Federal Reserve Chairman in 2006 and was faced with the mortgage meltdown, which almost led to a collapse of the global economy, in 2007. In response to the mortgage meltdown Bernanke began to aggressively cut interest rates so banks could lend money to one another at a cheaper rate and pass along the savings to its consumers.
Shortly after came the collapse of some of the largest and oldest banking institutions in America including Bear Stearns and Lehman Brothers. Fannie Mae and Freddie Mac were also placed into conservatorship as a result of their risk taking in mortgage backed securities.
Then came the move that irritated Bernanke and the American public the most, 4 bailouts of AIG totaling close to $160 billion. Bernanke stated “AIG made terrible bets and was operating out of the sight of regulators but (the Federal Reserve) had no choice to stabilize AIG or risk enormous impact not just in the financial system but in the whole U.S. economy.”
Over the weekend AIG stirred up enormous anger amongst U.S. citizens by announcing bonuses of $165 million to executives that made risky financial contracts that have placed the company in the position it is in today.
In September of 2008 Bernanke felt that we were “very close to a global financial meltdown,” and urged Congress to pass what we know now as the Troubled Asset Relief Program (TARP).
The peak of the financial crisis was reached in the second week in October of 2008, just a few short weeks after the Treasury began to use funds from the TARP to inject capital into financial institutions. Bernanke believes that “if we did not have those powers we could of had a much much worse outcome.”
Bernanke also went on to state that major banks and institutions such as AIG and Citigroup who have received multiple bailouts will not fail under his watch. The Federal Reserve is currently analyzing a “stress test” on the all of the banks that it regulates. This means that the Feds are monitoring these institutions closely to see how much capital these institutions need to be well capitalized and solvent so that it is in a position to reap the benefits once a recovery begins.
This leads us to the next, and final, step in curing the financial meltdown which has institutions, which have received tax payer money, paying back the money they have borrowed from the government.
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