Federal Reserve Chairman Ben S Bernanke said the biggest risk to an economic recovery is a shortage of “political will,” using his first televised interview since taking office to stress the need to revive US banking.
“The biggest risk is that, you know, we don’t have the political will,” Bernanke said in a taped interview on CBS Corp’s “60 Minutes” program that aired on Sunday. “Recovery is not going to happen until the financial markets and the banks are stabilised,” and the government’s plan is “going to take some patience. It’s going to take some support,” he said.
Bernanke’s comments signal he is prepared for criticism from lawmakers over any request for more aid to beleaguered financial companies, including additions to the $700 billion Troubled Asset Relief Program. Treasury Secretary Timothy Geithner said this month the US bank-rescue plan may need another infusion of taxpayer money.
Senator Jim Bunning, a Kentucky Republican, voiced the skepticism of some lawmakers by telling Fed Vice Chairman Donald Kohn at a March 5 hearing that should regulators request “more money for more banks and more corporations” they “will get the biggest ‘No.’”
The Fed has also come under fire for declining to release the names of counterparties to American International Group Inc that benefited from the federal rescue. Yesterday, AIG released a list of 20 foreign and US banks that received billions of dollars in collateral payments after the bailout, identifying companies including Societe Generale of France and Deutsche Bank AG of Germany. AIG and the Fed had previously said the companies couldn’t be named because of confidentiality requirements.
‘Green shoots’
Bernanke reiterated in the interview that, should the government succeed in calming financial markets, the recession will probably end this year and the economy will expand in 2010. “Green shoots” are appearing in some markets aided by the Fed, and there has been “some improvement” in banks, he said.
Bernanke, 55, didn’t offer new details on financial-rescue programmes or economic forecasts.
The television show, including footage of the Fed chief visiting the rural South Carolina town where he grew up, gave Bernanke an opportunity to make the case he understands the anxieties of ordinary Americans.
“I come from Main Street,” Bernanke said near the building where his father owned a pharmacy in Dillon, South Carolina.
‘One reason’
“I care about Wall Street for one reason and one reason only — because what happens on Wall Street matters to Main Street,” Bernanke said. “And if we don’t have stabilisation in the financial markets, if we don’t take the steps necessary to make sure that credit is flowing again, then my father couldn’t get a loan to build his new store.”
Bernanke said the October law creating the TARP prevented a possible “global financial meltdown” and that he told a skeptical congressman at the time that businesses in his district would begin suffering losses without decisive congressional action. He didn’t identify the lawmaker.
“We’ve averted” the risk of a depression, Bernanke said. “Now the problem is to get the thing working properly again.”
While the largest US banks are “solvent,” Bernanke reiterated that the government’s so-called stress tests will determine how much more capital each bank will need to be “well capitalised” in tougher times. One sign of a recovery would be success by a large bank in raising private capital, he said.
He elaborated on comments earlier this month that the bailout of AIG made him angrier than any other incident during the financial crisis, saying he “slammed the phone more than a few times on discussing AIG.”
‘Absolutely unfair’
“It’s absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets,” Bernanke said. Yet failing to rescue the company would “risk enormous impact, not just in the financial system, but on the whole US economy,” he said.
Bernanke said “the era of this high living” is over for bankers and that banks must “find a way to make loans to creditworthy borrowers” now.
The interview comes a year after the Fed’s $30 billion rescue of Bear Stearns Cos. heralded what would become a series of bailouts and emergency lending programs. The Fed has more than doubled its assets over the past year to $1.9 trillion, and it’s starting a $1 trillion joint effort with the Treasury this week to unfreeze markets for consumer and business debt.
The interview enabled Bernanke to reach a wide audience amid growing public anger over taxpayer-funded bailouts and abuses on Wall Street. The program’s interview with Obama, which aired in November when he was president-elect, drew about 25 million viewers.
‘Extraordinary Time’
“It’s an extraordinary time,” Bernanke said. “This is a chance for me, I think, to talk to -- to America directly.”
CBS billed the segment as the first broadcast interview with a sitting Fed chief in 20 years. Bernanke, 55, became Fed chairman in February 2006. He succeeded Alan Greenspan, who had held the post since 1987.
Bernanke’s practice of rarely going on the record with the media contrasts with that of counterparts such as European Central Bank President Jean-Claude Trichet, who gives regular press conferences and interviews.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
