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January 13th, 2009

Bernanke: Stimulus Alone Is Not Enough



Federal Reserve Chairman Ben Bernanke delivered a speech today at the London School of Economics on “The Crisis and the Policy Response.” Mr. Bernanke argued that the president elect’s stimulus package alone would not be enough to facilitate an economic recovery.

“In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system.  History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively,” said Bernanke.

Bernanke touched upon several “strong measures” — both new strategies and past practices — that will allow policy makers the ability “to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest.”

“Consequently, more capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”

“Should the Treasury decide to supplement injections of capital by removing troubled assets from institutions’ balance sheets, as was initially proposed for the U.S. financial rescue plan, several approaches might be considered.”

“In addition, efforts to reduce preventable foreclosures, among other benefits, could strengthen the housing market and reduce mortgage losses, thereby increasing financial stability.”

Bernanke also stressed the importance of both short and long-term improvement, stronger supervision and regulation, the need for international oversight, and a re-examination of financial institutions once deemed “too big to fail:”

“It is unacceptable that large firms that the government is now compelled to support to preserve financial stability were among the greatest risk-takers during the boom period.”

While these types of speeches do not usually announce a new policy, they do reveal new strategies. Especially if another $350 billion is released by Congress, federal officials have recognized that not only must they do things differently, they need to do more.

What should policymakers focus on as their main strategy when moving forward?

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3 Responses to “Bernanke: Stimulus Alone Is Not Enough”

  1. Val Fitzgerald Says: February 14th, 2009 at 12:40 pm

    Eminent Domain. That will stop the unwinding of the nation’s chief asset–its housing stock–in its tracks. The assumption of good, still-solid, only-financially-troubled assets, by the Feds, will stop the unraveling of America’s financial security.

    Government indemnifies the poor from the depredations of the rich. That’s why the rich hate government. They want the markets to do what markets always do–gobble up the poor into one vast Troubled Asset, to be then picked over at leisure, by the Rich (whose malfeasance created these ‘troubled assets’.

    The rest–the Middle Class (that’s US, folks)can be discarded at the leisure of the Uberclasse (aka, the looters) when they have finished serving their purpose (to enrich the predators who took America to the edge of bankruptcy).

    Eminent Domain, will stop this cold. That’s why the wealthy are trying to focus our attention elsewhere–on their new assault on Social Security. But Americans have always been a people who could walk and chew gum at the same time. We now know that everything the wealthy class does, is to distract the rest of us from using our institutions to limit their power.

    We allow them to distract us, at our peril. Right now it is time to re-institute the ‘uptick rule’ (which the wealthy killed in 2007, directly leading to this financial crisis) and then use Eminent Domain directly against the wealthy, who would destroy the backing of all our assets with the only thing that ever had any value–our housing markets.

    Luckily, President Obama and his people do seem to be the ones who can best walk, and chew (financial) gum, at the same time.
    Thank God that they’re on OUR side. And not on the Robber Baron side.

  2. Val Fitzgerald Says: February 14th, 2009 at 12:46 pm

    Freezing foreclosures was the single best thing that the Obama team could have done. Then using eminent domain to stop future foreclosures–and perhaps even reverse last years’ foreclosure frenzy. That will STOP THE ECONOMIC CRISIS ALMOST COMPLETELY, and restore full faith in our CREDIT SYSTEM.

    We can then, go on from there; it will be all on the upside, as long as the Obama team continues on the way that they have chosen to deal with this Republican-manufactured crisis.

    FDR, who the Republicans hate with a passion, left us the tools to manage any future (from 1929) depredations by the politically-connected wealthy.

  3. Tim Manni Says: February 17th, 2009 at 10:36 am


    Thanks for your comments. Since you seem quite intrigued by the eminent domain strategy, I’m really interested to read your reactions to two other blog posts from us from about a month ago. Check these out: “Foreclosure Assistance Through Eminent Domain?” (http://blog.hsh.com/?p=2004) and “Thoughts on Foreclosure and Eminent Domain” (http://blog.hsh.com/?p=2041).

    Eminent Domain, as far as what I know about it from researching the article, seems like a sticky situation. Yet here’s the National Community Reinvestment Coalition’s (NCRC) Ace up their sleeve: “the NCRC believes that by utilizing the government’s power of eminent domain, “legal impediments regarding the complexity of selling loans held in securitized pools” can be avoided. Under the plan, eminent domain eliminates an investor’s say in the loan mod process, since the government would purchase the property directly.”

    Someone is still getting shorted, and it seems to be the investor.

    Hope to hear back from you regarding your reactions.

    Thanks again for your comments, we appreciate your feedback,

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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