a hectic few hours for us he says. In a much discussed speech in March, 2005, he argued that the main source of imbalance in the global economy was not excess spending at home but, rather, excess saving in China and other developing countries, where consumption was artificially low. (Weve reestablished moral hazard, a source involved in the Lehman discussions told the Wall Street Journal.) But less than forty-eight hours later the Fed agreed to extend up to eighty-five billion dollars.I.G., a firm that had possibly acted even more irresponsibly. What's on your nightstand? In early March, 2008, stock in Bear Stearns, the investment bank and a major underwriter of subprime securities, fell steeply amid rumors that the firm was having trouble raising money in the overnight markets, on which, like all Wall Street firms, it depended to finance. In fact, psychologists for some time have been running surveys in which they have asked thousands of randomly selected people in countries all around the world to rate their own happiness or life satisfaction, and recently economists have gotten into the act. The Fed, determined to keep money flowing in the event of a crisis, had developed several ideas, including auctioning Fed loans and setting up currency swaps with central banks abroad, to enable cash-strapped foreign banks to lend in dollars. I think we did the right thing to try to preserve financial stability, Bernanke said. The problem wasnt the size of Bear Stearnsit wasnt the fact that some creditors would have borne losses. Bernanke is being an academic, Cramer bellowed.
After a weekend of torturous negotiations,. In September, it still looked good, Frederic Mishkin, a Columbia professor and a close friend of Bernanke, who served as a Fed governor from September, 2006, until August of this year, told. The paper by Bernanke and Gertler provided theoretical support for Greenspans stance, and it received a good deal of publicity, something neither of its authors had previously experienced. The markets had gyrated for a couple of months before recovering strongly, and the broader economy had been largely unaffected. A bailout ran counter to the Bush Administrations free-market principles and to his own belief that reckless behavior should not be rewarded, but he had worked on Wall Street for thirty-two years, most recently as the.E.O. If he moved slowly, people on Wall Street accused him of timidity.