Former Fed Chairman, Bernanke: We Can not Blame Trump During the Great Recession

The explosion of populist politics that contributed to the victory of President Donald Trump and the rise of left-wing progressives was not triggered by the reaction of US policymakers to the 2008 financial crisis, said the former Chairman of the Federal Reserve Ben Bernanke.

Faced with the collapse of today's political markets, Bernanke said in an event at the Brookings Institution that public discontent had increased for decades due to stagnant wages and declining wages. mobility. Although the economic crisis and subsequent bank bailouts did not help, they were not the main drivers, he added.

"It's an erroneous premise," Bernanke told a discussion alongside former Treasury secretaries, Timothy Geithner and Hank Paulson, about the steps they've taken to limit the damage during the great recession.

The three men who led the US response in 2008 spoke at length about the difficulty of persuading the public that their Wall Street rescue was a critical first step in helping people stay home and keep their jobs. . Paulson said the Fed and the Treasury Department should make decisions that benefited the banks to protect the financial system, but the measures were seen as rewarding the "arsonists".

'Hard Case'

"It's a difficult case to do, and we have not been able to do it," said Paulson. Banks have worsened the situation, he said, by giving big bonuses to executives as their businesses recover. "When the banks were making a lot of money, they turned around and paid big bonuses," he said. "It was more than I could handle."

For Bernanke, it was hard to find anything else: the critical years of the Fed's program, known as quantitative easing, during which the central bank bought government bonds to stimulate l & # 39; economy. Hard rhetoric continues today, he said, speculative fund managers blaming the program for contributing to inequality. "As if that interested them," said Bernanke, who started advising the hedge fund giant Citadel in 2015.

On a receding day, the three men seemed pleased to have performed well ten years ago, even under such extreme pressure that Paulson noted that he had not had the chance to call his brother who was executive at Lehman Brothers Holdings. Inc. for 10 days after the collapse of the company. But former officials have also been pressed by the current government's willingness to face another crisis.

Regulator tools

According to Geithner, the tools that regulators will absolutely need have been removed, including the powers of the Fed and the Federal Deposit Insurance Corp. to directly help troubled banks and the Treasury's authority to strengthen money market funds. The Congress can give them back, but it is difficult to know what the political difficulties will be "because you are sliding towards the abyss," he said.

"I do not think this is the right choice for us as a country," said Geithner, adding that rules strengthening bank capital and liquidity have strengthened the sector and need to be preserved.

Paulson said that despite the current dysfunction in Washington, it is possible that the government will help the financial system again in the event of a crisis.

"I never want to bet against the United States and our political system in times of crisis," said Paulson. "A crisis can bring out the best."