Fed Chief Visits Rhode Island
Tuesday, October 05, 2010
Federal Reserve Chairman Ben Bernanke spoke with college students at the Rhode Island Convention Center yesterday about how he had applied the lessons of the Great Depression to the current economic crisis.
Bernanke also delivered the keynote address for the annual meeting of the Rhode Island Public Expenditure Council last night. Other speakers included a who’s who of Rhode Island politicians— U.S. Sen. Jack Reed, D-RI, Gov. Donald L. Carcieri, state Senate President M. Teresa Paiva-Weed, and state House Speaker Gordon Fox.
Lessons from the Great Depression... for the Great Recession
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“I spent a lot of years as an academic studying the Great Depression, and I did once write that understanding the Great Depression was the holy grail of economics because it was something that was such an enormous event,” Bernanke told students. “It was global and many people don’t think about it, we all think about the US. You know 1929, stock market crash, but really it was a global event just like [the financial crisis of 2008] was a global event.”
He said he took away two big lessons from the Great Depression—be aggressive and proactive on both monetary policy and regulations that ensure financial stability.
“We cut interest rates, we brought interest rates down close to zero… And so now we have a very accommodated monetary policy that’s very important to the economy in helping to support the recovery,” Bernanke said.
A New Approach to Financial Regulation
Bernanke also touted the new financial reform bill which he said changed how the Federal Reserve approaches regulation. Before the crash in the financial markets, bank regulators focused on individual institutions and individual markets, according to Bernanke.
“So, the bank regulators looked at the banks, the market regulators look at their specific market, the thrift regulators looked at the thrifts, and so on… So as long as your particular part of the system was OK, you didn’t have to worry. ‘Oh, you got rid of those subprime mortgages? Well that’s great, we’re all fine now,’” Bernanke said.
The new approach, he said, is to examine and identify risks to the system as a whole.
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