RTTNews - Federal Reserve Bank Chairman Ben Bernanke said Sunday that government intervention to save large financial companies such as American International Group during last year's financial crisis was controversial but necessary to avoid a full collapse of the American financial system.
Speaking at a town hall meeting in Kansas City, Mo., Bernanke said that he acted to avoid broader economic damage that would have occurred had he allowed such companies to collapse.
I was not going to be the Federal Reserve Chairman who presided over the second Great Depression, he said.
Bernanke told an audience of 190 gathered at the Kansas City's Federal Reserve Bank that he was frustrated and angry at the fact that the Fed had to intervene to save firms that were taking wild bets and forcing themselves into bankruptcy.
The Fed chairman touched upon other subjects at the hour-long meeting, such as the central bank's slow reaction to the subprime mortgage crisis, when delinquencies on adjustable rate mortgages rose and securities backed with those same mortgages lost most of their value.
We have to take some heat for that, he said.
Bernanke, still argued, however, as he did on Capitol Hill last week, that the Fed should still have oversight of consumer protection practices.
The Obama Administration has proposed creating a new agency to oversee consumer protection in regard to mortgages, credit cards and other financial products, but Bernanke maintained Sunday that the central bank must maintain its independence.
Addressing a bill introduced by representative Ron Paul (R-TX)to give the Government Accountability Office the power to audit the Fed's monetary policy operations, Bernanke argued that Congress already had the authority to monitor the central bank's books and loans that present risks to tax payers.
He added that the proposed bill would allow the GAO to issue additional subpoenas to Fed officials and make judgments on interest rate decisions based on requests from Congress.
I don't think that's consistent with independence, he said. I don't think people want Congress making monetary policy.
At the meeting-which will be broadcast over three nights this week on PBS-the chairman also commented on current economic conditions, saying the Fed has been working hard and putting the pedal to the metal to boost the economy. He also said that inflation would remain low for the next couple of years.
Bernanke added that the most of the money from president Obama's $787 billion stimulus package will flow in 2010 and that the effectiveness of the package will be judged then. He also said that unemployment will top 10 percent this year, higher than the 9.5 percent unemployment rate announced in June.
Bernanke, who became Fed Chairman in February, 2006, has faced increasing scrutiny from lawmakers in recent months for the central bank's controversial actions. He has sixth months left in his term, and Obama has not said whether he plans to reappoint or replace him.
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