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Ben Bernanke Financial Crisis Hero

Stock-Markets / Financial Crash Sep 13, 2013 - 07:58 AM GMT

By: Bloomberg


Former Treasury Secretary, Hank Paulson joined Bloomberg Television’s Tom Keene today on “Street Smart.”

On being Treasury Secretary for two years, six months, and ten days:

“It went quickly, but I hit the ground running. I had fortunately, a year before the crisis to build relationships of trust with the President and that relationship was clearly critical.”

On whether President George W. Bush was engaged:

“This man was totally engaged. He was a great boss. He was accessible all the time.  Could get him early or get him late. What he did during the crisis, he recognized we needed a different set of procedures. He said, I was his wartime general. We had a good working relationship.”

On what was Tim Geithner if he was the wartime general:

“I worked directly for the President. Geithner, Tim, was a close partner. The relationship that Ben Bernanke, Tim Geithner, and I had were ordinary. They were true partners. The level of cooperation, mutual trust, made the working relationship very unusual.”

On what Dick Fuld was going through:

“Agony. Every CEO on Wall Street was tested. This was a 100-year storm. They were dealing with problems they had not seen in their lifetime and it was totally new. Many of them working to keep their companies solvent. To be there and go down with your ship is very, very sad.”

On not being able to communicate to the public that the bailout was a rescue for the economy rather than a bailout for Wall Street:

“I was unable…It was a difficult thing to do. Communication, publically, of that broad audience, I thought it should be obvious that as Treasury Secretary of America, everything I was doing was to save the American people. I knew how bad it would be if the system collapsed. But it was a communications challenge because I feared to come upon us. The more I talked about what it would be.”

On why East Coast elites should trust guys like him:

“Where I was at my best was working in smaller groups, working with colleagues in the administration, working with democrats and republicans on the Hill, building trust based upon credibility, working together, being nonpartisan. I think for me, as a public speaker going broadly, first of all, for people to understand what we did and agree with it, you have to understand how severe the crisis was. You had to understand that if the system collapsed it could be the Great Depression all over again. They could lose their jobs. I think part of the challenge for me was, I did not want to say it quite that bluntly because we were on the edge. What I had to decide between communicating one way and stability, I always opted for stability.”

On what his best practices for the elite to transfer their message to Main Street:

“To do this job right today anywhere in the world and particularly in the United States running any big global company is much more difficult than it’s ever been. There are many demands on a CEO. One of the demands is speaking to the public and helping the public understand you and your company, your business, and its value to society. Banks are a huge part of our economy. Our financial system, our banking system is the strongest in the world. It’s the most transparent. It’s the most efficient. Its core strength. It has problems, but it is an honorable profession.”

On whether he is confident we will not have another financial crisis:

“Here is what I say. It is the question I get asked of the most. We will certainly have another financial crisis, as long as we have financial markets and bouts of panic there will be crises. Most of them are manageable. What we need to do is avoid these massive disruptions, like the Great Depression or like the 2008 crisis that could have been the Great Depression. I say the following. The system today is much safer than it was. We’ve made a lot of progress but we have more work to do. We need to finish cleaning up our messes and we need to fix the number of flawed government policies beginning with Fannie Mae and Freddie Mac.”

On why Jamie Dimon and others fight the simplistic idea of just putting more capital on the books:

“ The question is how much? I’m a big believer that it is the best defense against failure. We want capital and liquidity.  What I would say here, the banks are already much better capitalized. Second of all, we have the new regulations put out by the Federal Reserve and other regulators which call for a capital surcharge for the biggest financial institutions. I think that’s a very good first step. On top of that, regulators now have the tools so they can manage the failure of any large institutions.”

On what characteristics the next Fed chair needs to confront those possible instabilities:

“The next phase will be important because there will be much more of an emphasis on a return on assets,  productivity, real growth, and we are going to have to as Chairman Ben Bernanke has said, we are going to have to move from these extraordinary low interest rates and get back to real margin.”

On whether he has the confidence we will do that without instability and shocks:

“There’s bound to be volatility. There is no perfect solution when you have a big, ugly, messy problem. There will never be a perfect, elegant solution. I believe that Ben Bernanke has been a hero. To be where we are today, where you have growth of 2% since late 2009 while we have been undergoing this necessary and massive deleveraging of consumers, it’s important. There is bound to be volatility. The next Fed Chairman, again, which is a huge,  very important decision for President Obama, the key qualities are, first of all, fierce, independence, great ability, and to be someone who you want to see a return to and Ben Bernanke. And then someone who is a good communicator.”

On Putin’s Op-ed questioning American exceptionalism:

“Well, this is a very special country. It's a country that's based upon innovation, entrepreneurship. And the key thing is social mobility, the fact that everyone feels in this country they've got a chance to succeed. And so I think the most important thing we have to do to keep this spirit of American exceptionalism is fix our economy so that we're growing at a level so we can sustain our long-term prosperity, create jobs and narrow the gap – this widening income gap. Because I think if there's anything that's demoralizing, it's to have the gap get wider and wider. And to do that, I think we're going to need some bipartisan compromise in Washington and get some – some policies that are really pro-growth policies. Immigration reform, a different tax system, et cetera.”

Copyright © 2013 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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