The world finally knows how former Federal Reserve Chairman Ben Bernanke views the 2008 financial crisis.
“September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” said Bernanke in a document filed Aug. 22 with the U.S. Court of Federal Claims, reports The Wall Street Journal. Of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”
Bernanke made these comments in reference to a lawsuit linked to the 2008 government bailout of AIG, notes the WSJ. Timothy Geithner, the former Treasury Secretary, was also quoted in the lawsuit, saying the economy was “in free fall” between Sept. 6 and Sept. 22 of 2008.
Former AIG CEO Hank Greenberg filed a $25 billion lawsuit against the U.S. government on behalf of Greenberg's Starr International Co and other AIG shareholders. This week a federal judge rejected the government's motion to reject the suit and a trial is scheduled for Sept. 19. Starr says the government's $182.3 billion bailout of AIG in September 2008 was illegal and "violated its due process rights under the Fifth Amendment of the U.S. Constitution," according to Reuters.
Bernanke’s opinion that the financial crisis superseded the Great Depression justifies why the Federal Reserve took unprecedented measures to stem bank losses and buttress the extremely weak economy. The Fed slashed interest rates to zero and undertook unprecedented and controversial stimulus measures in 2009 that allowed the Fed to buy trillions of dollars worth of bonds and mortgage-backed securities. Fed watchers expect that quantitative easing program will conclude in October, five years after the recession ended. Current Fed Chair Janet Yellen has given mixed signals as to when markets can expect the first rate hike.
The U.S. economy could have sustained a deeper slump if not for the efforts of the Fed and the federal government. TARP (Troubled Asset Relief Program) – the Treasury Department’s $700 billion program to stabilize the U.S. banking system – was one factor that helped shore up and restore confidence in the nation’s banks. (although many Americans were opposed to the bank bailout and some economists such as Paul Krugman argued the stimulus was too small).
If the Great Recession is the worst financial crisis since the 1930s, then that would explain why millions of Americans are still struggling to find jobs, pay down debt and become financially secure.
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