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Jax Daily Record Monday, Nov. 8, 201012:00 PM EST

Bernanke: 'The danger was enormous'


By Karen Brune Mathis

Managing Editor

College finance, business and economics students witnessed the lecture of a lifetime on Friday.

Federal Reserve Board Chair Ben Bernanke spent 50 minutes at Jacksonville University telling about 40 students from several universities about the Fed system and its decisions and challenges.

“We have been faced with extraordinary events,” he told the students from JU, the University of North Florida, the University of Florida, Rollins College and Stetson University.

The Fed has supervised policies to try to ease the worst recession since the Great Depression. The recession began in December 2007 and ended in June 2009, although the economy continues to suffer from high unemployment, residential foreclosures and other economic challenges.

Asked by a student about the Fed’s bailout of American International Group, Bernanke said that had AIG collapsed, “the global financial system would collapse.”

“We certainly were not happy about doing it,” he said. “We did it because … the danger to the world economy was enormous.”

“We succeeded,” he said, “in avoiding the financial meltdown.”

While he was not happy with the bonuses that AIG management gave executives in the aftermath, he said he asked about legal action and was told there was none.

Bernanke came to Jacksonville because he was heading to a Federal Reserve Bank of Atlanta meeting at Jekyll Island, Ga. The Atlanta bank’s Jacksonville Branch works closely with JU, specifically with the Economic Roundtable of Jacksonville, which meets at the Arlington institution.

According to the Atlanta Fed, the Nov. 5-6 conference marked the century anniversary of the 1910 Jekyll Island meeting that resulted in draft legislation for the creation of a U.S. central bank. It said that parts of the draft were incorporated into the 1913 Federal Reserve Act. The conference was scheduled at the Jekyll Island Club, the same building where the 1910 meeting occurred.

The Jacksonville event took place at the JU Davis College of Business conference room. After the students filed in, they took their assigned seats at several rows of tables. Bernanke, perched on a chair in front, explained the Fed and took questions. The event started at 2 p.m. and ended right at 2:50 p.m. Bernanke was accompanied by security.

The Fed is the nation’s central bank and was created by Congress in 1913 to make monetary policies to stabilize prices and moderate long-term interest rates. It also regulates banks for safety and soundness.

Bernanke had written a column published Thursday in The Washington Post to explain the Fed’s decision to buy $600 million in bonds in an effort to boost the economic recovery.

“Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy,” he wrote.

He wrote that the Federal Reserve responded with measures to help stabilize the financial system.

The Post said Saturday that AIG reported a $2.4 billion loss due to restructuring charges as the insurance company made progress toward trimming its balance sheet and returning taxpayer-funded bailout money.

The Post said the government owns 80 percent of AIG, whose moves likely will lead to an upgrade to AIG’s credit ratings, “setting the stage for the government to take the steps necessary to start selling its stake.”

It said AIG owes about $100 billion from the nearly $182 billion rescue package it received at the peak of the 2008 credit crisis and that one of the first portions that AIG plans to repay is a $20 billion credit facility from the Federal Reserve.

Bernanke told the students about the Fed’s “dual mandate” from Congress to promote stability in the financial system and to promote policies for a high level of employment and low, stable inflation.

While inflation remains low, the nation’s unemployment rate continues near 10 percent.

The Fed’s Federal Open Market Committee, which is the Fed’s monetary policymaking committee, met last week to review the economy and, he wrote in the Post, “we could hardly be satisfied.”

The purchase of longer-term Treasury securities is designed to help reduce longer-term interest rates, such as those for mortgages and corporate bonds.

Bernanke told the students that the unemployment rate, if declining at all, “is coming down very, very slowly.” He also said that inflation is likely to remain “quite low.”

Asked about government, Bernanke said “the Federal Reserve is totally nonpartisan.”

“We’re not in the business of making political predictions,” he said.

Asked about housing, Bernanke said the amount of residential construction in the United States is below where it should be to serve a growing population. “At some point, housing construction has to be higher than it is today,” he said.

But working through the volume of residential foreclosures takes time and it pushes down housing prices. Eventually, he said, production will improve.

A UNF student asked a question, referring to some former Bernanke remarks he had researched. Bernanke answered and added a thank you.

“I’m glad you read my speeches,” he said.

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