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To prevent the next financial crisis from being worse than the previous one, Congress must act. You can help.
The latest crisis exploded in September 2008, becoming the worst economic upheaval since the Great Depression. In Sonoma County, 28,000 people lost their jobs, more than 15,000 homes were lost due to seizure and painful scars remain.
It could have been a lot worse.
Between 2007 and 2010, the Federal Reserve, the Federal Deposit Insurance Corporation and the US Treasury paid more than $ 6 trillion in commitments and guarantees to global financial markets. By mid-2009, the economy had started a slow recovery and programs had already made a profit. Officially, the recession lasted 18 months.
It was different from the Great Depression, when the Federal Reserve refused to intervene and the Depression lasted 12 years, according to the Fed's calculations.
"We did it," admitted Ben Bernanke, governor of the Federal Reserve, in 2002. "We are really sorry. … we will not do it anymore. As President of the Fed, he kept his promise five years later.
Both crises were strangely similar.
In 1929, a stock market bubble burst, triggering four years of rushes on financial institutions by panicky depositors and panicky investors to get their money out.
In 2006, a housing bubble burst, triggering four years of financial institution worries by panicky depositors and investors in search of cash.
But the results were very different.
Now, Bernanke is worried. Here's why.
Ten years ago, an angry public considered that the $ 6 trillion effort to save the financial markets was a bailout for the giants at the root of the crisis, while small guys had it taken. And that was true, of course. Politicians have responded to this anger by making it more difficult for federal organizations to bail out the bad guys next time.
Uh-oh.
Bernanke and Treasury Secretaries Timothy Geithner and Henry Paulson Jr., the trio that led the response to the financial crisis, launched a campaign to restore emergency powers.
In writing recently in The New York Times, they said it's understandable that bailouts are unfair, "we need to make sure that future generations of firefighters have the necessary emergency powers to prevent the next fire from ablaze. "
Here's what they want Congress to fix:
– Several new limits imposed on the Fed's activities, notably the fact that the Fed can no longer grant emergency credit to save a company, as was the case for Bear Stearns and later, AIG. We have to wait for several companies to be threatened and get the Treasury Secretary's approval.
– The FDIC can not guarantee a new bank debt, as it did in 2008, so that banks can obtain emergency funds.
– The US Treasury can not guarantee money market funds as it did in 2008, while it guaranteed $ 3.2 trillion in deposits threatened by the collapse of the fund.
If you agree with Bernanke, Geithner and Paulson, talk to your US representative and senators. The time for regulators to discipline bankers and greedy traders is not in a time of crisis.
Mary Fricker is a retired corporate reporter from the Democratic Press who talks about the financial crisis on repowatch.org. She lives in Sebastopol.
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