December 1, 2008, 2:38 pm
Bush Recounts an ‘Uh-Oh Moment’
Henry J. Pulizzi reports on the White House.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke warned President George W. Bush that without strong government action the U.S. could face a depression worse than the Great Depression, the president said in an interview released Monday.
“When you have the secretary of the Treasury and the chairman of the Fed say, if we don’t act boldly, we could be in a depression greater than the Great Depression, that’s an ‘uh-oh’ moment,” Bush said in an interview with ABC anchor Charles Gibson.
Paulson and Bernanke delivered their stark assessment shortly before the administration asked Congress to okay the $700 billion financial-market rescue package in September. “That was, of course, the crystallization,” Bush said.
Asked if it was a mistake to let Lehman Brothers fail, Bush said that judgment will be made by historians. He defended the administration’s need to make “big decisions and big calls.”
“The one thing that I don’t want to have happen is people say this thing was in a financial meltdown and we didn’t do anything,” Bush said. “And so we’re moving — hard.”
“What scared me is not doing anything, which would have caused there to be a huge financial meltdown and the conceivable scenario that we’d have been in a depression greater than the Great Depression,” he added.
Bush suggested that he doesn’t feel responsible for the economic crisis occurring on his watch, but said he is upset that the administration’s effort to reform government-sponsored enterprises Fannie Mae and Freddie Mac didn’t succeed years earlier. He also said that a number of crucial decision on Wall Street were made before he became president.
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2 December 2008
AFP
Bernanke says crisis 'no comparison' to Great Depression
2 December 2008
WASHINGTON (AFP) — Federal Reserve chairman Ben Bernanke said Monday the current economic situation bears "no comparison" to the much deeper crisis of the 1930s Great Depression.
"Well, you hear a lot of loose talk, but let me just ... say, as a scholar of the Great Depression -- and I've written books about the Depression and been very interested in this since I was in graduate school, there's no comparison," Bernanke said in a question period after an address in Austin, Texas.
Bernanke cited "an order-of-magnitude difference" in the current situation compared to the 1930s.
"During the 1930s, there was a worldwide depression that lasted for about 12 years and was only ended by a world war," he said.
"During that time, the unemployment rate went to 25 percent, at least, based on the data that we have. The real GDP (gross domestic product) fell by one-third. About a third of all of the banks failed. The stock market fell 90 percent."
Bernanke said the situation at that time represented "very difficult circumstances," because "we didn't have the social safety net that we have today. So let's put that out of our minds; there's no -- there's comparison in terms of severity."
He added, "We're very lucky to live in a country as rich and diversified as the one we have. And I hope that we will have a quick and rapid recovery from the current slowdown."
Still, the Fed chief said lessons learned from the Depression may still apply today, including the "excessively tight monetary policy" that led to higher interest rates and deflation of about 10 percent a year over the first three years of the 1930s.
"We have learned from that experience that monetary policy has got to be proactive and supportive of the economy in a situation of difficult financial conditions," he said.
"The other part was -- the other error, the big mistake that policymakers made in the early '30s was they essentially allowed the financial system to collapse and they didn't do anything about it. The Federal Reserve did no action as the banks failed by the hundreds and the thousands."
In a related matter, President George W. Bush said in an interview released Monday that Bernanke and Treasury Secretary Henry Paulson warned him weeks ago that bold action was needed to avert a new Great Depression.
"I can remember sitting in the Roosevelt Room with Hank Paulson and Ben Bernanke and others, and they said to me that if we don't act boldly, Mr. President, we could be in a depression greater than the Great Depression," Bush told ABC News.
Bush said the conversation came four to five weeks after the government began mulling rescue plans for insurance giant AIG and other companies.
"And that was right before we went to Congress for the 700 billion dollars" in rescue funds, Bush said.
"And my attitude is, is that if that's the case, this administration will do everything we can to safeguard the financial system. And that's what we've been doing."
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