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Today I was fortunate to attend a luncheon as a guest of Charles Schwab & Company where the speaker was Ben Bernanke. In his speech he recounted the events that led to the current financial crisis but hearing him summarize the events chronologically deepened my understanding. It was amazing that someone could speak about so many detailed and accurate facts so eloquently. The audience’s respect for Mr. Bernanke captivated our interest. What an honor to hear such an outstandingly profound speaker in person.
Questions were allowed which was a reflection of Mr. Bernanke’s confidence and his ability to communicate incredibly well without preparation. Someone asked how the current economic crisis compares to the Great Depression an area in which Mr. Bernanke is a known expert. He made the point rather well that the current situation does not even remotely compare to the depression of the 1930’s which involved a 90% stock market correction 12 year depression and unemployment at 25%. The Great Depression only finally ended with the start of World War II.
He pointed out that beyond the different extremes of the various factors mentioned above there were 2 major problems that were handled differently this time over the depression of the 1930’s. First excessively tight monetary policy continued into the Great Depression whereas rate cuts were made early and proactively this time. Second the financial system was allowed to collapse in the 1930’s while the Federal Reserve has been as aggressive as possible to bring stability to the financial system. Such stabilization leads to broad growth and recovery of financial markets. Mr. Bernanke stated that mistakes from the past provided guidance on how to avoid history from repeating itself.