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B-52 has finished testifying. Sheila Bair is now in the hot seat. I will post a link to Bernanke's taped testimony as soon as it becomes available.
Summary and reaction:
As a scholar of the Great Depression, Federal Reserve Chairman Ben S. Bernanke said Thursday he knew the failure of Lehman Bros. in 2008 would be an economic disaster. But he believed there was no way to save the investment bank without a huge loss of taxpayer money.
"This is my bread and butter, and I believed deeply that if Lehman was allowed to fail or did fail, the consequences on the U.S. financial system and the U.S. economy would be catastrophic," Bernanke told the federal panel investigating the financial crisis.
But he said Lehman lacked the collateral to back up a loan from the Fed and such a move would not have stopped a run on the bank by customers.
"If we lent the money to Lehman … we would have saddled the taxpayers with tens of billions of dollars in losses," Bernanke said.
Bernanke said he wanted to help Lehman to avoid the damaging consequences that would come from its bankruptcy. The Fed was able to rescue AIG because its huge insurance assets provided adequate collateral.
"It was with great reluctance and sadness that I conceded that there was no other option" than to let Lehman fail, he told the commission. "If I could have done anything to save it, I would have saved it."
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WASHINGTON—The need to eliminate firms that are effectively "too big to fail" was the top lesson from the recent financial crisis, Federal Reserve Chairman Ben Bernanke told an investigative panel Thursday.
Regulators "now have the tools to do that" under the recently passed Dodd-Frank law, he said, and will force firms to divest or restructure if they pose an untenable risk to the broader economy.
"My projection is that even without direct intervention...that over time we will see some breakups and some reduction in size and complexity of some of these firms," Mr. Bernanke told the Financial Crisis Inquiry Commission, which is tasked with investigating the causes and fallout from the credit-market collapse.