Why bernanke is wrong

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Team or Enterprise Premium FT. Pay based on use. Does my organisation subscribe? A high-achieving student, Bernanke completed his undergraduate degree summa cum laude at Harvard University, then went on to complete his Ph. He taught economics at Stanford and then at Princeton University, where he chaired the department until when he left his academic work for public service. He officially left his post at Princeton in Bernanke was first nominated as chair of the Fed by President George W.

Bush in He had been appointed to President Bush's Council of Economic Advisors earlier the same year, which was widely seen as a test run for succeeding Greenspan as chair. In , President Barack Obama nominated him for a second term as chair.

He was succeeded by Janet Yellen as chair in Prior to serving his two terms as chair of the Federal Reserve, Bernanke was a member of the Federal Reserve's Board of Governors from to Ben Bernanke was instrumental in stimulating the U. He took an aggressive and experimental approach to restore confidence in the financial system. One of the multiple strategies that the Fed applied to curb the global crisis was enacting a low-rate policy to stabilize the economy.

Under the tutelage of Bernanke, the Fed slashed the benchmark interest rates near to zero. By reducing the federal funds rate , banks lend each other money at a lower cost, and in turn, can offer low-interest rates on loans to consumers and businesses.

As conditions worsened, Bernanke proposed a quantitative easing program. The quantitative easing scheme involved the unconventional purchase of Treasury bond securities and mortgage-backed securities MBS in order to increase the money supply in the economy. By purchasing these securities on a large scale, the Fed increased the demand for them, which led to an increase in the prices. Since bond prices and interest rates are inversely related, interest rates fell in response to the higher prices.

Ben Bernanke also helped to curb the effects of the rapidly deteriorating economic conditions by bailing out a number of troubled big financial institutions. While the Fed underwrote the decision to let Lehman Brothers fail, they bailed out companies, such as AIG Insurance, due to the higher risk that the bailed-out companies posed if they went bankrupt. In the event that the company lost out on its speculative position on these derivatives, it would not have sufficient funds to pay out or cover its losses.

For companies like Merrill Lynch and Bear Stearns, the Federal Reserve incentivized Bank of America and JPMorgan to purchase and take over both companies by guaranteeing the bad loans of the troubled banks. In his book, The Courage to Act , Bernanke wrote about his time as chair of the Federal Reserve and exposed how close the global economy came to collapsing in , stating that it would have done so had the Federal Reserve and other agencies not taken extreme measures.

President Barack Obama has also stated that Bernanke's actions prevented the financial crisis from becoming as bad as it could have been. However, Bernanke has also been the subject of critics who claim he didn't do enough to foresee the financial crisis.

His frank comments mirror those of his predecessor Alan Greenspan who confessed earlier this year that he didn't see the economic tidal wave coming. This report from business editor Peter Ryan. In an article entitled "Anatomy of a Meltdown", Dr Bernanke acknowledges he was wrong in believing there would be limited fallout from the risky subprime sector which started to collapse almost two years ago. Extract from Ben Bernanke article I and others were mistaken early on in saying that the subprime crisis would be contained.

The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict. BEN BERNANKE July, : The economy continues to face numerous difficulties including ongoing strains of financial markets, declining house prices, a softening labour market and rising prices of oil, food and some other commodities.

He says he was convinced the strategy would work as recently as September in the weeks leading up to the collapse of Lehman Brothers which took the US financial system to the brink of catastrophe. History is still judging Ben Bernanke but it seems the verdict is in on Henry Paulson.

It is now wreaking havoc in the insurance industry. Nobody pays attention to it but it is devastating. Repeal it or at least suspend the thing and in terms of reviving the housing market, Fanny and Freddie are now owned by the Federal Government so get over it.