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Former NY Fed President Bill Dudley on the financial crisis

Former NY Fed President Bill Dudley says the Fed did a good job during the crisia dnw was in good position.

Video Transcript

BILL DUDLEY: I think that financial markets were really close to a period of not working, of dysfunction. The Treasury market was in turmoil in March and April if you were unwinding levered trades, long cash, short futures. As the dealer community had lack of capacity to essentially provide balance sheets to people who needed balance sheets at the time. We also saw a lot of stress in the corporate bond market and municipal bond market, as people started to contemplate a much worse economic outcome.

The pandemic came on so quickly. And we went from a fine economy to a horrible economy just within a few weeks. And that put a tremendous amount of stress on markets. I think the Fed appropriately came to the rescue, and said, we're going to be the market maker of last resort. We're going to buy treasuries. We're going to buy agency mortgage backed securities.

And then with the CARES Act and the support from the US Treasury, introduced a whole slew of programs to backstop markets, backstop the corporate bond market, the municipal bond market. And I think with that, with the Fed there as the buyer of last resort that really reassured private sector investors that markets would be OK. And the markets subsequently recovered quite sharply.

So the Fed, I think, did a good job during that period of time. And they were in a good position to do that in part because of what happened during the great financial crisis. A lot of these tools were on the shelf. They'd already been developed before. And so, they could be taken off the shelf quite quickly. And because they'd been effective last time around, I think it also increased the expectation that they would work in this particular crisis.