Bernanke testimony at Senate confirmation hearing

WASHINGTON Thu Dec 3, 2009 4:17pm EST

WASHINGTON (Reuters) - The following are highlights from a Senate Banking Committee hearing on Thursday on Ben Bernanke's nomination to a second term as chairman of the Federal Reserve.

REPUBLICAN SENATOR JUDD GREGG ON FED'S RESPONSE TO CRISIS:

"If you hadn't been there, and hadn't been willing to take extraordinary action last fall, last winter, and even early spring ... it's very likely we would be experiencing a depression, or certainly a recession that would be radically more severe than what we experienced...

"The way I describe it is, it's like people driving over a bridge that was about to fall down. They didn't know that there was somebody under there to fix it so it didn't. They don't give you credit, but the fact is you did take the action that was necessary, and it was a very creative and aggressive action.

BERNANKE, AFTER BEING ASKED IF MORTGAGE RATES WILL RISE A COUPLE OF HUNDRED

BASIS POINTS WHEN THE MBS PURCHASE PROGRAM ENDS:

"We have said that the current program is going to come to an end at the end of the first quarter. It is a monetary policy decision and the committee will have to see how the economy is evolving and whether or not we need to do more. The several hundred basis points... there is a lot of uncertainty about exactly what the impact will be .. and I think that is very much at the high end of what estimates are."

"In order to try to mitigate the effects we have been tapering it off very slowly and so far we have not seen much effect but we'll see how that evolves and the committee is prepared to respond if necessary."

BERNANKE ON DOLLAR AND PURCHASING POWER:

"Inflation has been low and in that respect the purchasing power of the dollar has been good, it's been stable."

BERNANKE ON WEAK SPOTS IN RECOVERY:

"The two issues we need to watch more closely are the return -- the healing -- of the credit system, especially for smaller borrowers, and the labor market."

BERNANKE ON DEALING WITH BUBBLES:

"The first line of defense ought to be regulation and supervision. That can help protect the system even if you are not sure the increase in asset prices is a bubble or not. Monetary policy has to pay attention to this situation, we are looking at it. We are doing our best to try and look at the major credit and stock markets, use the valuation models that we have, use the standard indicators that we have to try and look for misalignments. I do not rule out using monetary policy if necessary, if that situation does become worrisome and threatening to our mandate, which is growth and inflation."

BERNANKE ON TARP:

"I certainly think that the TARP has mostly served its purpose and that it's time to start thinking about how we are going to unwind that program. In addition, as I've noted several times, many banks are paying back the TARP and a lot of the money that was put out is now coming back to the Treasury."

"I think if we look at the money that was put into financial institutions specifically, I think overall we are going to end up pretty close to break-even, maybe somewhat in the red but not too much, and considering what was achieved in terms of stabilizing our U.S. financial system and avoiding the collapse of our system I think that outcome would be a good outcome."

SENATOR DODD, BERNANKE EXCHANGE ON AIG COUNTERPARTIES:

SENATOR DODD: The fact that we allowed 100 cents on the dollar to go to the counterparties with little or no negotiation, I've raised the issue with others before, I don't understand that at all and most Americans don't. That was billions of dollars, one company alone was $12.5 billion. It is hard to accept the notion we couldn't negotiate with the counterparties at that time.

BERNANKE: We had no leverage. If we didn't pay off they would have said "you're bankrupt"..

DODD: We wrote a check for $180 billion to AIG, if we hadn't done that they would have been in trouble.

BERNANKE: To AIG, but not...

DODD: The counterparties would have been in trouble too.

BERNANKE: That's all true, but most of the firms were foreign, we had no authority or leverage over them.

DODD: But you're the chairman of the Federal Reserve, you've got powers.

BERNANKE: I don't abuse my supervisory power

DODD: Apparently not, in that case.

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