Bernanke, Geithner & Paulson Warn: “We’ve Forgotten The Lessons Of The Financial Crisis”
by Tyler Durden
ZeroHedge.com
Thu, 07/19/2018
Late last month, the Fed declared that six of the country’s biggest banks needed to scale back their plans for returning cash to shareholders to strengthen their capital buffers, a striking reminder that banks shouldn’t be overeager to put the legacy of the financial crisis behind them. Perhaps this is why, during a private round table discussion last week that Timothy Geithner, Henry Paulson and Ben Bernanke, three officials who helped combat (and many would argue also helped cause) the financial crisis warned that the lessons of the financial crisis are already being forgotten, according to the Associated Press,
Paulson, who was Treasury Secretary when Lehman Brothers filed for bankruptcy in September 2008, said that as banks scramble to return money to their investors, “it’s important that people focus on the lessons” of the crisis. “We are not sure people remember everything they need to remember.”
The roundtable took place ahead of a meeting in September at the Brookings Institution (former Fed Chair Bernanke’s current employer) where officials from the Fed, Treasury and other federal agencies will discuss how the US can prepare for the next crisis. The meeting appears to be a counterbalance to the Trump administration’s “deregulatory zeal” as lawmakers and leaders of federal agencies work to undo or sideline some aspects of the Dodd-Frank Wall Street reform bill. Though all three men agreed that the reversal implemented so far by the Trump administration had been “sensible.”
Still, while the safeguards implemented by the law will help the banking system fend off smaller crises, an extreme crisis could pose an existential threat.
“We’ve got better defenses against the more mild, typical sets of shocks that happen to economies and financial systems but in the extreme crisis probably less degree of freedom, more constraints than would be ideal,” former Treasury Secretary and New York Federal Reserve Bank President Geithner said.
Bernanke and Paulson complained that, if another serious crisis were to break out, Congress hasn’t allowed the FDIC and the Treasury’s Exchange Stabilization Fund enough flexibility to respond adequately, per Bloomberg.
“There is some concern there,” said former Fed Chairman Bernanke, who is now a distinguished fellow at the Brookings Institution in Washington, though he also noted that regulators are now more attuned to potential systemic risks.
And that’s extremely important, because there’s nothing more dangerous than failing to act, Paulson said.
“If we don’t act, that is the most certain fiscal or economic crisis we will have,” said Paulson, who chairs his own institute in Chicago. “It will slowly strangle us.”
The Rest…HERE
