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Tue, Jul 28, 2009 - Page 10 News List

Bernanke defends Fed action on crisis

MANAGEMENT: Responding to criticism on government aid to large financial firms, the Fed chairman said their collapse would have brought down the whole system


US Federal Reserve Chairman Ben Bernanke defended the central bank’s response to the financial crisis and recession in a forum to be televised this week, saying he sought to avoid a “second Great Depression.”

“The problem we have is that in a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said yesterday at a town hall-style meeting in Kansas City, Missouri, taped for broadcast on Public Broadcasting Service television this week.

“I was not going to be the Federal Reserve chairman who presided over the second Great Depression,” he said.

Bernanke’s appearance indicates he is stepping up public-relations efforts while confronting criticism from lawmakers over government aid to big financial firms.

His first term at the central bank’s helm ends on Jan. 31, and US President Barack Obama needs to decide whether to reappoint him for another four years.

“People still have big questions, which are, how did we get in this mess, how do we get out of this mess, how are we going to make sure this mess never happens again?” said Gregory Hess, an economics professor at Claremont McKenna College in California and a member of the Shadow Open Market Committee, a group of economists that critiques the Fed.

Participating in the meeting was an “enormously smart decision” for Bernanke, Hess said before the event. “It’s a time where he can really leverage his ability to communicate.”

Bernanke, responding to a man who said he was a small business owner “frustrated” over billions of dollars in aid provided to large financial firms, said: “I understand your frustration.”

“We’re working really hard to try to make it better,” he said, referring to Fed efforts to improve credit for small businesses.

Bernanke said he expected the US economy to grow at an annual rate of 1 percent in the second half, while unemployment would exceed 10 percent before beginning to decline.

The Fed chief said independence from political interference in setting interest rates produces “much better results” for the economy.

“We are very, very sensitive to this issue,” Bernanke said at the forum. “We need to have some independence from Congress and the administration.”

Voter concern that the Fed overstepped its authority prompted a majority of House lawmakers to co-sponsor a measure allowing for audits by the Government Accountability Office of the central bank’s monetary policy and other operations. Bernanke opposes the measure, which was introduced by US Representative Ron Paul.

The Fed chief appeared on the CBS program 60 Minutes in March, his first televised interview since becoming Fed chairman in 2006.

Before that, a Fed chairman last gave a broadcast interview in 1987, when Bernanke’s predecessor, Alan Greenspan, appeared on ABC’s This Week with David Brinkley.

Greenspan later said he regretted the interview because he “made some inadvertent news.” Stocks slipped after Greenspan suggested on the program that inflation could become a problem.

Bernanke’s comments are scheduled to air in three segments this week as part of The NewsHour with Jim Lehrer.

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