Ex-Federal Reserve Chairman Ben Bernanke admitted that policy chiefs made two major errors when dealing with the global financial crisis 10 years ago:
1) They didn’t see it coming.
2) They misjudged its scale.
Bernanke, speaking in a video to address the points raised in a 90-page report on the Bernanke team’s handling of the economic crisis in 2008 released on Thursday said, “Nobody saw how widespread and devastating the crisis itself would be”.
Ben Shalom Bernanke, who served two terms as the Chairman of the U.S. Federal Reserve between 2006 and 2014, is now an economist at the Brookings Institution, a social science research group in Washington D.C.
In his video Bernanke cited the panic that overcame the financial system following the fall of Lehman Brothers on September 15, 2008 as the main reason for the severity of the recession that was to follow.
The Fed’s inability to forecast the intensity of the economic downturn “demands a more thorough inclusion of credit-market factors in models and forecasts of the economy” in the future, Bernanke wrote in a separate article.
Bernanke is not the only ex- Fed honcho to hold his hands up to past mistakes this week. Donald Kohn, former Fed V.C. concurred with Bernanke that the U.S. central bank made critical errors before, during and after the crisis. “We were behind the curve”, he said.
Kohn, speaking at a conference at the Brookings Institute on Tuesday, went on to say that Federal Reserve policy makers had overestimated the amount of money required to implement its controversial QE program, and was thus more restrained than necessary in its execution.
Bernanke: Sub Prime Not to Blame (Mostly)
Bernanke disagrees with economists that place the blame for the financial downturn firmly at the feet of institutions that allowed sub prime mortgage securities to spiral out of control.
While the housing-price bust – and its effect on household income and high street spending – certainly played an important role in igniting the crisis, Bernanke contends that the recession would not have been so intense had investors not rushed to pull their money out of the banks.
“There was a run, a panic analogous to the 1930s, but in an electronic form rather than people lining up in the street. The availability of credit plummeted.”
This article is for educational and informative purposes only and should not be considered as investment or trading advice.