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Ben Bernanke says Fed could have done more during crisis

Abu Dhabi: Former Federal Reserve Chairman Ben Bernanke said the US central bank could have done more to fight the country’s financial crisis and that he struggled to find the right way to communicate with markets.

“We could have done some things on the margin to mitigate somewhat the crisis,” Bernanke, 60, said on Tuesday at the Global Financial Markets Forum in Abu Dhabi, his first public speaking engagement since he stepped down in January after eight years heading the Fed.

“Although we have been very aggressive, I think on the monetary policy front we could have been even more aggressive.” Bernanke said he could now speak more freely about the crisis than he could while at the Fed — “I can say whatever I want” — and in remarks to over 1,000 bankers and financial professionals in the capital, he made clear that he had regrets.

The United States became “overconfident”, he said of the period before the September 2008 collapse of US investment bank Lehman Brothers. That triggered a crash from which parts of the world, including the US economy, have not fully recovered.

“This is going to sound very obvious but the first thing we learnt is that the US is not invulnerable to financial crises,” Bernanke said.

As the Fed provided tens of billions of dollars of emergency aid to the US financial system, Bernanke said he felt the central bank was in a “terrible” political situation because it could be accused of bailing out institutions unfairly.

He also said he found it hard to find the right way to communicate with investors when every word was closely scrutinised.

“That was actually very hard for me to get adjusted to that situation where your words have such effect. I came from the academic background and I was used to making hypothetical examples and … I learnt I can’t do that because the markets do not understand hypotheticals.” He concluded that he should “try to simplify the message, but not simplify too much”.

Ultimately, Bernanke said, he wished the US economy could have recovered faster but “we did good in a very complicated situation and in a very complex political situation, and the result is what it is.”

Another former heavyweight in US economic policy, ex-Treasury Secretary Lawrence Summers, spoke at the Abu Dhabi event and criticised some aspects of Fed policy under Bernanke, although he acknowledged that policy needed to be expansionary.