Ben Bernanke of the Federal Reserve Took Many Steps to Battle the Foreclosure Crisis
Ben Bernanke of the Federal Reserve took many steps to battle the foreclosure crisis. The question that arises is that were these steps too much or too little?
The sub-prime mortgage crisis that led to the foreclosure tsunami engulfed the lenders with fear. They stopped lending and thus endangered the economy. Starting from August 2007 the feds under its chairperson Ben Bernanke began to take some steps that made new channels for central banks to lend. Much of it targeted investment banks that had hitherto been left to manage their own tribulations.
Many criticize the move for putting at risk the money of the taxpayer and encouraging a repeat of similar behavior from the financial bodies that had created this foreclosure mess. Some laud Bernanke for the move.
Jeremy Siegel a professor of finance in Wharton had a good word for the measures. He said, “The Fed has been very innovative and very appropriate – and very timely.” However Siegel is worried about another federal response involving a series of rate cuts was perhaps too heavy a dose for the economy to take when inflation was knocking on its doors. But on the whole Siegel feels Bernanke has done a good job of it and the measures are working. He feels Bernanke has carved a place for himself in history.
Siegel is optimistic that the country will brave through a brief period of recession. He said, “Think about what happened 70 years ago with the Great Depression, when a similar set of circumstances hit. The Fed didn’t come to the rescue. The whole banking system went belly-up and unemployment went up to 25% and (gross domestic product) contracted by one third. I mean, these are magnitudes that we can’t even imagine today, but it shows you how bad things can be.
Another professor of Wharton Jeremy Herring has words of praise for Ben Bernanke. The quick and swift action taken by Ben Bernanke has helped not only the markets to recover from a temporary problem of liquidity but has allowed it to regain health. It is attracting new capital so as to make up for the enormous losses suffered.
Siegel and Herring represent the view of a wide section of pundits and experts. But many are concerned about the unintended consequences that will result. Paul Volker a former chairperson of Federal Reserve feels that the body has not done well by stepping out of its traditional role by accepting securities backed by mortgages, student loans and other assets that were risky.
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