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Bernanke Calls for Broad Regulatory Reforms

Updated 9:28 a.m.

Federal Reserve Chairman Ben Bernanke, speaking at the Council on Foreign Relations right now, said that broad overhaul of the financial regulatory system is necessary to prevent another crisis from happening.

Specifically, he said, the problem of "too big to fail" must be addressed -- the concept that a firm, typically a bank or a non-bank financial institution such as AIG, that is so big that if it fails, it will drag down the whole system.

Bernanke said that system-wide oversight, something known as "macroprudential regulation" is required, and that the Fed could be the home for that, or it could be another agency.

In macroprudential regulation, a government agency, or agencies, monitors an entire economy to look for possible bubbles and attempts to deflate them, rather than focusing tightly on individual sectors or firms.

Asked what he learned from the Great Depression, Bernanke said that monetary policy needs to be supportive, not contractionary. The Fed didn't understand what was going on in the 1930s, Bernanke said, adding that they were following narrow policies based on the gold standard.

Secondly, when the financial institutions break down, they take down the economy with them, another fact that was not understood during the Depression.

Asked when the recession will end, Bernanke said: "My forecasting ability on this recession has been about as good as the win-loss percentage of the Washington Nationals," said Bernanke, referring to the baseball team that finished in last place last season.

Asked about mark-to-market accounting -- which is forcing sick banks to value their toxic assets at the price they would bring if they were sold today, which is near zero -- Bernanke said he would not favor suspension of mark-to-market, saying it provides investors with transparency.

However, he said, "We should identify the weak points of mark-to-market and fix them faster."

A House Financial Services subcommittee is scheduled to meet tomorrow to take testimony on mark-to-market accounting.

In regulatory areas, Bernanke said that authorities need to impose tighter restrictions on where money market mutual funds can invest, noting that one fund "broke the buck" last year.

Bernanke said the financial crisis has exposed "shocking regulatory gaps."

"Who was overseeing the sub-prime lenders?" he asked, rhetorically. "What was overseeing AIG?"

You can read his entire speech here.

--Frank Ahrens

By Sara Goo  |  March 10, 2009; 9:19 AM ET
Categories:  The Ticker  
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Comments

Odd isn't it, the very organization that fueled the crisis(es) and the very person who stood by watching them develop (along with Greenspan) has an idea? The 1st overhaul should be of the Federal Reserve (reduce it's role to printing money, nothing more, certainly not regulating the supply...e.g. "interest rate control"), 2nd should be the SEC, sell it to private industry; afterall, private industry has consistently proven to be smarter than the SEC (employee IQ gap is obvious). Once heard a CEO say that when they occasionally find a SEC employee as smart as their staff, they hire them right away...win/win....they get a good employee, the SEC is left with only the deadwood to float to the top.....

Posted by: wmboyd | March 10, 2009 9:39 AM | Report abuse

Need more then Broad Reforms.

There is much too much collusion with the So called Federal Reserve, the private entity itself with all the secrecy, no transparency as to the stock holders and other special interests. The biggest boondoggle itself and using tax payers money with no questions asked.

2. Banks and Insurance companies should be totally separate entities and businesses.

3. These power house monsters are too big for their breaches and too involved in secret deals, no oversight, transparency and all the politicians in their pockets. A mecca for corruption and collusion.

4. Not only reforms but rather strict laws. The current bunch of thugs that includes the Fed Chairman himself, each and every member of SEC, Hank Paulson and all his assistants, the uncouth shyster private bankers are all criminal. Unless they are gotten rid off nothing will change.

5. Bernnake and all these other SOBs with their life styles and to the hilt catered lives are not effected. They have no idea and are completely out of touch with the masses and their lives.

6.The SObs and all the rest like him are not only in denial but keep on banging the same of drum, when the current economic system is fundamental flawed and has been in perpetual decline for since Reagan and his deregulations.

7. Any financial institution that deals with public money should be required to open their books to the public and declare their assets that should be held in public trust as reserves. As it is the flawed system is a perpetual black hole.

8 No nationalization for the taxpayers to be left holding the bag full of these useless assets , while the SOB uncouth shyster private bankers walk away free with their personal ill gotten assets and loot.

9. They are criminally negligent and there is no two ways about it.

10. Since these Congressional hearings are not criminal courts etc. the SOBs should be mandated to answer all questions . NO 5th amendment rights, Hold them in contempt and march them to Prison.

Posted by: winemaster2 | March 10, 2009 9:58 AM | Report abuse

Glass/Seagall act... Glass/Seagall act... Glass/Seagall act... Glass/Seagall act...

Regulation WAS there. then the Glass/Seagall act... was repealed by republicans and signed by Clinton... It would have averted his crisis... Ill say it again to all in congress and President Obama...

Glass/Seagall act... Glass/Seagall act... Glass/Seagall act... Glass/Seagall act...

Posted by: Froward69 | March 10, 2009 10:02 AM | Report abuse

I think if we had people at the Federal Reserve doing their jobs, we would have had a minimal negative effect. If Susan Troll (who has not gotten enough credit) at T. Rowe Price can analyze securitized subprime mortgages and determine that they are garbage then the Federal Reserve could also. I have heard that the Fed is full of politics when it comes to citing bank shortcomings.

Posted by: hz9604 | March 10, 2009 10:19 AM | Report abuse

Reform? You've got to be kidding. The house is on fire and we need reform? This is a delaying tactic and nothing more. It is time for action to put the fire out. Sheesh! Check out www.GloomBoom.com for insight on the current economic crisis.

Posted by: GloomBoomDotcom | March 10, 2009 10:28 AM | Report abuse

Mr. Bernake has the capacity to become a reformed sinner - just like the rest of us. Give the man a chance!

Posted by: markomd | March 10, 2009 10:29 AM | Report abuse

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve into existence

P.S. Nothing has changed.

Posted by: nskouris | March 10, 2009 10:49 AM | Report abuse

One has to face the facts. Admit it - laissez faire capitalism is dead, and needs to be acknowledged with a formal and final burial.

No more caveat emptor. That would have worked when the buyer and seller were on equal footing, and both have a commensurate say in the transaction. When you are dealing with giant corporations, whether it is Wal-Mart, Microsoft, Citigroup or GE, the buyer is completely at the mercy of the seller. If I buy software, the EULA agreement is there for me to either sign and accept all the inscrutable conditions, or forego using the product. If I open an account with the Citigroup and sign the myriad documents with the endless pages of fine print, I have to engage a lawyer to decipher all the legalese, or walk away from the bank.

All the legal fineprint is there to preotect the company/corporation from real and imaginary; foreseen, unforeseen; possible, probable, and impossible scenarios. If a dispute arises, the poor buer has no idea that all rights have been ceded away to the amorphous corporation.

Granted, there are institutions such as Science in the Public Interest, Consumer Reports, Common Cause, which attempt to come to the aid of the consumer, but apart from the public sympathy they have managed to generate through years of work, they have no legal force behind them. They have to make an enormous effort for the slightest gain they can eke from the sysyem.

The Government rightly has to take up the slack, and be the representative of the people in this struggle of the Consumer against the Corporation.

Bernanke, however late, however culpable himself, has come to this realization. I hope.

Posted by: pKrishna43 | March 10, 2009 10:53 AM | Report abuse

Maybe we can finally face up to the farce of Reagonomics and bid it a final goodbye.

Posted by: Billy1932 | March 10, 2009 10:53 AM | Report abuse

We need a hero. We need at least one good man, with good character, who carries a big stick, highly intelligent and who won't succumb to greed. We need the Elliot Ness of the SEC to step up and smack these CEOs and Corporations down.

Is there a single good man left in America today??? I sure don't see any.

Posted by: Impeachbush99 | March 10, 2009 11:12 AM | Report abuse

So Ben, you are no longer a huge Cheer leader for handing trillioins over to the banks no strings attached???? I mean, just about a month and a half ago...

Posted by: Impeachbush99 | March 10, 2009 11:16 AM | Report abuse

I really truely believe that at this point, only bloodshed will reign in the audacity of these theiving CEOs. It's time to take them to task vigilante style for their actions. Out of all this financial turmoil, not a single person has gone to jail or even been run out of the companies they ruin(except SOB John Thain).

The Government isn't going to prosecute any rich folks or campaign contributors, it's up to WE THE PEOPLE to square this debt with these hideous, villinous, scum.

Posted by: Impeachbush99 | March 10, 2009 11:20 AM | Report abuse

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Posted by: nomesluc | March 10, 2009 11:33 AM | Report abuse

Sez Forward69:
"Regulation WAS there. then the Glass/Seagall act... was repealed by republicans and signed by Clinton... It would have averted his crisis... Ill say it again to all in congress and President Obama..."

The repeal was OVERWHELMINGLY passed by the congress--by both parties, liberals and conservatives alike. I'd love to find the roll call of those votes. Dollars to doughnuts there are several very liberal senators and representatives who voted to repeal.

So Dems like Obama who want to identify deregulation with the Republicans alone need a short course in recent history.

Posted by: Bluefish2012 | March 10, 2009 12:02 PM | Report abuse

Ah... here's the roll call in the Senate at least, voting to pass Glass-Seagall:

DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.

One or two liberal heroes are on the list, no?

And from an article by William Kaufman:

"The House Democrats were no less enthusiastic in their endorsement of this invitation to plunder--the repeal passed there by a margin of 343-86, with the Donkey Party favoring the measure by a two-to-one margin, 138-69. Current House speaker Nancy Pelosi managed not to register a vote on this one, so great was her fear of offending her party's corporate paymasters even though she knew passage was a sure thing."

Posted by: Bluefish2012 | March 10, 2009 12:14 PM | Report abuse

My infancy was blighted by the Great Depression; now my old age is similarly plagued. Both disasters originated in the home of greed, Manhattan. Strict independent international regulation is imperative if a further repetition is to be avoided.
The current "bail-outs" are futile, mere palliatives, perpetuating the problems, unless those whose abysmal incompetent ignorance created the catastrophe are removed completely from any further influence upon the economy, the protection afforded by their puppet politicians eradicated.
Millions upon millions around the world are suffering as a result of the voracious cupidity of the few. Please, U.S.A., clean up that home of evil. If you must control the world's economy use at least a modicum of intelligence. At present there is none in evidence, just a mouthing of hot air. Where is the promised change? Do not resist the calls for regulation at the forthcoming conference.

Posted by: octomann | March 10, 2009 12:15 PM | Report abuse

Bernanke is like the surgen that performs a meticulous amputation, annotates the patients chart, and says oops, wrong leg.

Posted by: laurelphoto | March 10, 2009 12:16 PM | Report abuse

Monday, November 10, 2008
What we said...
Someone recently asked about our track record with respect to the market crisis. Here, from 2003 and 2006, are a few of our comments:

SEC Comments. Page 6: "Envy, hatred, and greed have flourished in certain capital market institutions, propelling ethical standards of behavior downward. Without meaningful reform, there is a small (but significant and growing) risk that our economic system will simply cease functioning."

http://www.sec.gov/rules/proposed/s71903/wmccir122203.pdf

December 22, 2003.

and:

SEC Comments. Page 2: "Together these practices threaten the integrity of securities markets. Individuals and market institutions with the power to safeguard the system, including investment analysts and rating agencies, have been compromised. Few efficient, effective and just safeguards are in place. Statistical models created by the firm show the probability of system-wide market failure has increased over the past eight years.

Investors and the public are at risk."

http://www.sec.gov/rules/proposed/s71005/wcunningham5867.pdf

February 6, 2006.

See: http://twisri.blogspot.com/2008/11/what-we-said.html

Posted by: billycdc | March 10, 2009 12:22 PM | Report abuse


Regulation should not be to restrict companies growth but to guide them though the waters of commerce. What happened with the credit melt down did not help the companies, so those who cry "no regulation" get what they deserve, companies run aground. The lighthouse of regulation was either too dim or turned off.

Posted by: geomguy | March 10, 2009 1:03 PM | Report abuse

How come Madoff wasn't hogtied when he was brought to court. He should have been in hand cuffs and ankle cuffs.

Posted by: blakesouthwood | March 10, 2009 1:06 PM | Report abuse

Nothing Bernanke has done has worked yet. Could be he is part of the problem that should be replaced.

Posted by: davidwayneosedach | March 10, 2009 1:25 PM | Report abuse

America needs - nay, demands - that the very CEOs, CFOs, and other senior execs who gave themselves bonus payments, extra stock awards, increased salaries and retirement packages, etc - based on misstated earnings (aka "LIES") - GIVE BACK TRIPLE THE MONEY THEY STOLE.

And then go to JAIL - for YEARS.

Either that or we'll get some rope and do it for you.

UNDERSTAND?

Posted by: WillSeattle | March 10, 2009 2:11 PM | Report abuse

Really, Ben, ya think!!!

Posted by: democratus | March 10, 2009 2:23 PM | Report abuse

"Fed chairman says changes are needed to prevent another financial crisis"

Hello?
Wasn't everybody saying that back in October?
Exactly what does Bernanke do which makes him worth a salary higher than mine? (I'm a teacher - people actually benefit from what I do)

Posted by: wardropper | March 10, 2009 2:25 PM | Report abuse

"Fed chairman says changes are needed to prevent another financial crisis"

Change No. 1:
Bernanke out.


Posted by: wardropper | March 10, 2009 2:27 PM | Report abuse

"Another" financial crisis????? This one will change the the United States and the world so much for the worse that if this economic collapse wasn't so catastrophic that would be really funny.

Reminds me of the Einstein quote "I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones."

Posted by: citizen52 | March 10, 2009 3:42 PM | Report abuse

AIG was never too big to fail - nor are any of the financial institutions which taxpayers are generously subsidizing.

They are simply too well-connected to be allowed to fail.

Consider that these institutions - including AIG - are part of Pres. Obama's hand-picked team to advise him on financial regulatory "reform", as indicated in a Washington Post article from January 16, 2009: "Obama Adviser Urges More Rigorous Global Financial Regulation".

In this article you learn that former Fed. Chairman Paul Volker helped author a report which was created by a group called The Group of 30. What you don’t learn from the article is who else is in this group:

Jacob A. Frenkel – Chairman, Group of 30; Vice-Chairman, AIG
E. Gerald Corrigan – Managing Director, Goldman Sachs
Andrew D. Crockett – President, J.P. Morgan Chase International
Roger W. Ferguson , Jr. – Pres. & CEO, TIAA_CREFF
Stanley Fisher – Governor, Bank of Israel; Former Vice-Chairman, Citigroup (through April 2005)
Timothy F. Geithner, Current Treasury Secretary, Former Pres. &CEO, Federal Reserve Bank of NY
Gerd Häusler – Vice-Chairman, Lazard International
William McDonough - Vice Chairman and Special Advisor to the Chairman, Merrill Lynch
William R. Rhodes - President, & CEO of Citigroup NA.
David Walker – Sr. Advisor, Morgan Stanley
(to name a few - check out www.group30.org if you want to see the complete list)

Given this information we can reasonably conclude that the whole argument about “too big to fail” is simply a smokescreen to distract the general public from learning the real truth about what caused the US economic system to collapse. Nor can we assume that this simplistic view of the problem offers any type of real solution.

Posted by: venusvictrix | March 10, 2009 3:51 PM | Report abuse

On Bernanke:
“We should review regulatory policies and accounting rules to ensure that they do not induce excessive” swings in the financial system and economy, the central bank chief said today in remarks prepared for an address to the Council on Foreign Relations in Washington. "

Really, and what institution played the central role in providing fuel of easy credit, i.e. low real interest rates without regard to the bubble in real estate, commodities and cheap government debt? Why the Fed of course.

Now Bernanke wants to stick the Fed's nose in money market funds and clearance of payments?
Why don't we start by dismantling the too big too fail commercial and investment banks and hedge funds in order to limit systemic risk?
Instead, the Fed is lost in the forest and can't see the trees.

Depositor and retirees beware, the Fed wants your money for nothing so Wall Street, Hedge Funds and Banks, and the Fed, as well as the U.S. Government can operate for free on your borrowed money.

Posted by: wesatch | March 10, 2009 4:09 PM | Report abuse

I have been saying it for the past few months. Reforms are needed to consolidate the financial agencies into one agency which will have the power to enforce various regulatory gaps that was in existence and this will provide flexibility to ensure that abuse will never happen. Another problem is the ability of Congress to get involve legislating business decisions because various groups often don't like what the agencies' rules are they go to the highest bidder to change the law or underfund the agency so they can not do anything.

Posted by: beeker25 | March 10, 2009 5:12 PM | Report abuse

From where I sit, the alternative to keeping a strong Fed and listening to, perhaps favoring, their advise, is a spiral towards a 'corporatocrasy.' The basis of Mr. Smith's argument, and that of the free market, was that the many with less had more weight than the few with more. At the time the idea of incorporating was in its infancy.

Maybe it is time to look at what we have raised since then and evaluate whether or not that child of the free-market spirit is mature enough for us to just let it go as it will. I say that the corporate ethos is not ready for being 'off of the leash.'

Now, what of the Fed? Are they still capable of doing their jobs?

I'm saying yes for two reasons. Firstly, under the overwhelming bulk of Mr. Greenspan's tenure we enjoyed a wonderful economy. He was able to see that we smoothed the bumps; yet he made sure that the governors were in place while we were cruising all-sails with the wind.

The second and most important reason is Mr. Bernanke's admission of substandard performance. The 'plan, act, fail, learn' cycle is something good; but given that we haven't actually seen the whole cycle demonstrated in almost a decade, I can understand a degree of hesitation.

However, that proven means of making us better should not be abandoned because all we've seen recently is 'plan, act, fail, deny.' It hasn't been failing that hurt us in so many ways. It has been the choice of 'deny' over 'learn.' If we are to flourish again, we must insist on the latter.

Posted by: juggernautenterprises | March 10, 2009 5:25 PM | Report abuse

More misdirection from the FED. The creation of cheap money based on thin air in a fractional reserve system is the cause of the problems. We need to get congress to make the FED accountable, transparent and eventually replace it with the constitutional system that states congress has the power to coin money. The rest is lies and hot air in order to prop up a criminal system that is destroying your and my wealth.

Posted by: AtlasShrugged1 | March 10, 2009 6:33 PM | Report abuse

Jobs plus Health Care Benefits plus Pension

Posted by: blakesouthwood | March 10, 2009 6:49 PM | Report abuse

Yeah, right, macroprudential. Create bigger agencies to monitor bigger things. How about make things smaller and tell the bureaucrats at Treasury, the Fed, CFTC, FINRA, SEC, yadayadayada to get off their cans and start regulating and prosecuting or their fat government pensions will be handed over to Bernie Madoff for investment. Make them work weekends until this mess is cleaned up.

If you want to change the systemic risk profile, start with the Fed.

Posted by: wesatch | March 10, 2009 10:47 PM | Report abuse

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