We judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households.- Timothy Geithner
This crisis is not simply a more severe version of the usual business cycle recession, the typical downturn in which economies ultimately adjust and stabilize.
This crisis exposed very significant problems in the financial systems of the United States and some other major economies. Innovation got too far out in front of the knowledge of risk.
There is a basic lesson on financial crises that governments tend to wait too long, underestimate the risks, want to do too little. And it ultimately gets away from them, and they end up spending more money, causing much more damage to the economy.
The substantial uncertainty about the path of asset price movements going forward necessarily reduces the case for altering policy in advance of the move.
The rest of the world needs the US economy and financial system to recover in order for it to revive. We remain at the center of global economic activity with financial and trade ties to every region of the globe.
The recognition that things that are not sustainable will eventually come to an end does not give us much of a guide to whether the transition will be calm or exciting.
The plausible outcomes range from the gradual and benign to the more precipitous and damaging.
The major economic policy challenges facing the nation today - pick your favorites among the usual suspects of low public and household savings, concerns about educational quality and achievement, high and rising income inequality, the large imbalances between our social insurance commitments and resources - are not about monetary policy.
The choice is between which mistake is easier to correct: underdoing it or overdoing it.
Some think that by preparing to deal with crises you make them more likely. I think the wiser judgment is the contrary. In this area at least, if you want peace or stability, it's better to prepare for war or instability.
Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are now living through.
Most consequential choices involve shades of gray, and some fog is often useful in getting things done.
Monetary policy itself cannot sensibly be directed at reducing imbalances.
Looking past the immediate crisis, a more resilient system must be built on stronger and better designed shock absorbers, both in the major institutions and in the infrastructure of the financial system.
