The Chairman Part 1

aside from the president he's the most powerful man working to save the economy but you've never seen an interview with Ben Bernanke Bernanke is the chairman of the board of governors of the Federal Reserve System better known as the Fed the words of any Fed Chairman cause fortunes to rise and fall and so by tradition chairman of the Fed do not do interviews that is until now the Federal Reserve controls the economy by setting interest rates but after the crash of o8 Bernanke invoked emergency powers and with unprecedented aggressiveness he's thrown a trillion dollars at the crisis Ben Bernanke may be the most important Fed Chairman in history the question is can he help lead America out of this deep recession and when mr. chairman I'm gonna start with a question that everyone wants me to ask when does this end it depends a lot on the financial system the lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis we've seen some progress in financial markets absolutely but until we get that stabilized and working normally we're not going to see recovery but we do have a plan we're working on it and I do think that we will get it stabilized and we'll see the recession coming to an end probably this year we'll see recovery beginning next year and it'll pick up steam over time you think the recession is going to end this year in the sense that this decline will begin to moderate and we'll begin to see leveling off now we won't be back to full employment but we will see I hope the end of these declines that have been so so strong in the last couple quarters but you wouldn't say at this point that we're out of the woods no I think the key issue is the banking system in the financial system unemployment as we sit here is about eight point one percent I wonder do you expect double-digit unemployment well it's hard to forecast exactly where we're going unemployment is rising job losses are still still very severe and no doubt the unemployment rate is going to go go higher than it is but I think again that if we do succeed and stabilize in the financial system that will begin see a slower pace of decline and eventually a stabilization that will set the basis for a recovery you seem to be saying that we're not heading into a new American depression I think we've averted that that risk but I think we've gotten past that and now the problem is to get the thing working properly again Ben Bernanke age 55 has been chairman of the Federal Reserve Board since 2006 for our interview he opened up the Fed headquarters rarely seen by the public it's a monumental building along the National Mall construction started in 1935 in the depths of the Great Depression you know mr. chairman I think the Federal Reserve for most people is a mystery well it's it's an institution that people don't hear so much about but it's a very important one it manages monetary policy for the country it's one of the main tools we have for stabilizing our economy and keeping prices stable when was it founded the Fed was created by Congress in 1913 and its original purpose was to deal with financial panics which is what we're doing right now Bernanke's crisis started in 2007 with the mortgage meltdown lenders began to fail Bernanke cut interest rates repeatedly in 2008 the feds stopped the collapse of Bear Stearns by arranging a sale to another firm but then came the end of Wall Street as we knew it mortgage giants Fannie Mae and Freddie Mac were seized by the government on September 14th Merrill Lynch was sold in distress and the next day 158 year-old Lehman Brothers failed you didn't rescue Lehman Brothers it set off a worldwide panic when it went bankrupt and I wonder looking back whether you think that was a mistake there were many people who said let him fail you know it's not a problem the markets will take care of it and I think I knew better than that and Lehman proved that you cannot let a large internationally active firms fail in the middle of a financial crisis now was it a mistake it wasn't a mistake for the following reason we did not have the option we didn't have the tools the Federal Reserve cannot put capital into a into a institution all we can do is make loans against collateral the day after Lehman Bernanke's Fed did something astounding it loaned 85 billion dollars to a company that wasn't a bank at all American International Group the global insurance giant that was also involved in backing risky mortgage investments Bernanke says unlike Lehman the Fed could make the loan based on good collateral in AIG s portfolio there have now been four rescues of AIG for about a hundred and sixty billion dollars why is that necessary well let me just first say that of all the events and all the things we've done in the last 18 months the the single one that makes me the angriest that gives me the most angst is the intervention with AIG here was a company that made all kinds of unconscionable bets then when those bets went wrong they had a we had a situation where the failure of that company would have brought down the financial system you say it makes you angry what do you mean by that it makes me angry I you know I I slammed the phone in more than a few times on discussing energy it's it's just absolutely I understand why the American people are angry it's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets that was operating out of the sight of regulators but which we have no choice but to stabilize or else risk enormous impact not just in the financial system but on the whole US economy by September Bernanke and former Treasury secretary Hank Paulson went to Capitol Hill to urge a massive bailout of the banking system at that period I thought we were pretty close to a global financial meltdown how much danger was there how close a call it was very close it was very close we the the Congress passed the bill that gave Treasury the right to put capital into the banks in the first week of October and it was in the second week of October that the crisis reached its peak and if we not had those powers we could have had a much much worse outcome so it was a very dangerous situation was anyone on Capitol Hill skeptical did they push back at all say ah mr. chairman it's probably not quite that bad well I do remember one conversation I had where I was addressing a caucus of congressman and Congressman said to me he said to mr. chairman you know I've talking to bankers in my town I'm talking to shopkeepers in my town and they say things are normal nothing's going on we don't we don't see any problem and I turned to him and I said you will that second week of October the Dow fell eighteen percent its worst week in history in the midst of the crisis Bernanke had freedom to act immediately he doesn't need prior permission from Congress or the president while they debated on Capitol Hill Bernanke cut interest rates nearly to zero then he used depression-era emergency powers to launch a dozen rescue programs of his own there was support for money market funds mortgages short-term lending to small businesses and support for auto loans student loans and small business loans commitments of a trillion dollars doubling the size of the Fed's balance sheet is that tax money that the Fed is spending it's not tax money the banks have accounts with the Fed much the same way that you have an account in a commercial bank so to lend to a bank we simply use the computer to mark up the size of the account that they have with the Fed so it's much more akin although not exactly the same but it's much more akin to printing money than it is to borrowing you've been printing well effectively and we need to do that because our economy is very weak and inflation is very low when the economy begins to recover that'll be the time that we need to unwind those programs raise interest rates reduce the money supply and make sure that we have a recovery that does not involve inflation he's not kidding about printing money the Fed issues u.s. currency that's why it says Federal Reserve Note on all the bills in your wallet this is the Bureau of Engraving and printing just a few blocks from Bernanke's office the feds mandate from Congress is to put enough money in the system for maximum employment but not so much that it sets off inflation the Fed actually pays for itself and returns billions in profits to the Treasury in a sense Bernanke has been preparing for this emergency his whole professional life he got a PhD in economics from MIT he chaired the economics department at Princeton and his specialty is the Great Depression he's among many economists who now believed that it was the Federal Reserve itself that helped turn a recession in 1929 into a global calamity they made two mistakes basically one was they let the money supply contract very sharply prices fell deflation so monetary policy was in fact very contractionary very tight during that period and then the second mistake they made was they let the banks fail they didn't make any strong effort to prevent the failure of thousands of banks and that Bernanke told us that we were close to a second depression and he is determined not to let the major banks fail on his watch one of the things that I think many people watching this interview don't understand is why there are multiple bailouts for bailouts of AIG three bailouts of Citigroup there is a sense that this is a band-aid approach that we're not getting to the root of the problem well part of the issue is that you know the economy has gotten a little bit worse you know the first part of the crisis was subprime and other assets that were toxic now we're in a second phase which is that the economy is very weak so the economy's weakness has meant that some of the initial attempts to stabilize the banks haven't been enough and we've had to do more you know mr. chairman there's so many people outside this building across this country who say to hell with them they made bad bets the wages of failure on Wall Street should be failure let me give you an analogy if I might if you have a neighbor who smokes in bed and he's a risk to everybody and suppose he sets fire to his to his house and you might say to yourself you know I'm not gonna call the fire department let his house burn down it's fine with me but then of course what if your house is made of wood and it's right next door to his house what if the whole town is made of wood well I think we'd all agree that the right thing to do is put out that fire first and then say what punishment is appropriate how should we change the fire code what needs to be done to make sure this doesn't happen in the future how can we fireproof our houses that's where we are now we're having we have a fire going on it's still burning it's still burning or all the big banks that you regulate solvent I believe they are yes but we are doing a stress test right now where we're looking at what the positions of the banks are under a tougher economic scenario than the one that we currently expect and what we plan to do is to say how much capital would each Bank need to be well capitalized not just solvent but well capitalized even in these more adverse scenarios are you committing in this interview that you are not going to let any of these banks fail that no matter what their balance sheet actually looks like they are not gonna fail they're not gonna fail but what we can do should it be that necessary is is try to wind it down in a safe way in other words Bernanke thinks government should stabilize failed financial companies and take them apart slowly so for example in the case of AIG we've prevented a bankruptcy because of the chaos that would create but we are also demanding that AIG divest itself sell off its subsidiaries and use the proceeds to pay back the government what are the dangers now what keeps you up at night the biggest risk is that you know we don't have the political we'll we don't have the commitment to to solve this problem and that we let it just continue in which case you know we can't we can't count on recovery the Fed estimates the wealth of American families fell eighteen percent in 2008 the worst since the Great Depression in a moment Bernanke tells us what the first signs of recovery would look like

Channel: CBS News

Views: 9,545

Keywords: interview, fed, chairman, the, ben, bernanke, scott, pelley, money, banks, bailout, economy, cbs, 60, minutes

Id: uRM9qV4lkEg

Length: 13min 24sec (804 seconds)

Published: Sun Mar 15 2009