Bernanke recalls 'surreal moment' of Lehman's failure in new memoir
Ben Bernanke at the Brookings Institution in Washington, on Jan. 16, 2014. (AP / Manuel Balce Ceneta)
Martin Crutsinger, The Associated Press
Published Friday, October 2, 2015 7:33AM EDT
WASHINGTON -- Ben Bernanke recalls the September weekend in 2008 when regulators sought desperately but in vain to save the investment bank Lehman Brothers as a "terrible, surreal moment."
"We were staring into the abyss," the former Federal Reserve chairman writes of the tense negotiations, led by Timothy Geithner, then head of the New York Fed, and Henry Paulson, then Treasury secretary.
Regulators hoped to find a buyer for Lehman and avert what would become the largest bankruptcy in U.S. history, which ignited the worst financial crisis since the Great Depression.
A "blur" is how Bernanke describes the events.
Bernanke recalls the episode in a 600-page memoir, "The Courage to Act: A Memoir of a Crisis and Its Aftermath," scheduled to be published Monday. The Associated Press obtained an early copy.
Top executives of major banks took part in the marathon talks with regulators. Bernanke followed the talks from his Washington office, conferring on speaker phone with officials in New York, munching on sandwiches and taking catnaps on the burgundy leather sofa in his office.
"All we can do is put foam on the runway," Bernanke quotes Geithner as saying, describing measures taken to prevent a fire after a jetliner crash-lands.
Bernanke's memoir, which he began after leaving the Fed in February 2014, revolves around the crisis in which the government took over mortgage giants Fannie Mae and Freddie Mac and provided hundreds of billions in aid to the biggest U.S. financial institutions.
He notes that the taxpayer-provided bailouts were widely unpopular. He would wince, he said, when he saw bumper stickers saying, "Where's my bailout?"
But the book amounts to a defence of the bailouts and the Fed's rescue program for the economy. Late in 2008, the Fed cut its key short-term rate to a record low near zero, where it remains today, to support the economy. It also launched a bond-buying program to try to drive down long-term borrowing rates.
Bernanke argues that without the government's extraordinary assistance, the Great Recession, as severe as it was, would have been worse.
"The journey was nerve-wracking," he writes. "But most of my colleagues and I were determined not to repeat the blunder the Federal Reserve had committed in the 1930s when it refused to deploy its monetary tools to avoid the sharp deflation that substantially worsened the Great Depression."
Bernanke says the Fed's key goals were to lower interest rates to help the economy, unfreeze credit in the banking system, rescue major financial firms and conduct "stress tests" of the biggest banks to reassure investors.
The book, tracing Bernanke's life from his small-town roots in Dillon, South Carolina, to Harvard and Princeton universities to chairman of the Fed, reveals:
-- Growing up in Dillon, the son of the town's druggist, Bernanke describes himself as "bookish and shy and often on my own." As a Jew, Bernanke said he was something of an outsider. Several times, he writes, elementary school classmates asked "quite innocently, I believe" whether he had horns. The real prejudice in town, he says, was directed at African Americans.
-- Accepted to Harvard, he felt academically unprepared and failed his first physics midterm. Interested in math, he realized he couldn't compete with Harvard's top students and made a "last-minute decision" to take an introductory economics class taught by Martin Feldstein. He was soon hooked.
-- As a graduate student in economics at the Massachusetts Institute of Technology, Bernanke met his wife, Anna, on a blind date -- a spaghetti dinner followed by pingpong -- after being introduced by friends who felt they were both "nerdy."
-- During his darker days during the economic crisis, Bernanke found solace in a quotation from Abraham Lincoln given to him by the Fed's parking garage manager. Written on a 3-by-5 card and placed next to his computer screen, it began, "If I were to try to read, much less answer all the attacks made on me, this shop might as well be closed for any other business."
-- Recounting the frenzied deliberations as the Fed grappled with the collapse of giant insurer American International Group, Bernanke says, "I kept my emotions in check and tried to view the situation analytically, as a problem to be solved. But once I fully understood how irresponsible (or clueless) AIG's executives had been, I seethed." AIG eventually received nearly $185 billion in federal aid.
-- During the crisis, Bernanke, a baseball fan, sometimes sought refuge at Washington Nationals games. But his cellphone kept ringing. He once took a call at the stadium's first-aid station, speaking softly into his phone as "two nurses watched me curiously."
--When then-Gov. Rick Perry, campaigning in Iowa for the 2012 GOP presidential nomination, called the Fed's efforts to bolster the economy "almost treasonous" and warned that if Bernanke printed more money "we would treat him pretty ugly down in Texas," Bernanke joked privately with Fed staffers by quoting Revolutionary War hero Patrick Henry: "If this be treason, let us make the most of it." Bernanke also made a point of visiting an Army base in Texas after Perry's attack where he said "despite Perry's prediction, I was not at all treated ugly in Texas."
-- After being tapped by President George W. Bush to serve on the Fed's board, Bernanke, a Republican, eventually became turned off by political parties. He now regards himself "a moderate independent, and I think that's where I'll stay."