WASHINGTON: Ben Bernanke recalls the September weekend in 2008 when regulators sought desperately but in vain to save the investment bank Lehman Brothers as a “terrible, surreal moment”.

“We were staring into the abyss,” the former Federal Reserve chairman writes of the tense negotiations, led by Timothy Geithner, then head of the New York Fed, and Henry Paulson, then Treasury secretary. Regulators hoped to find a buyer for Lehman and avert what would become the largest bankruptcy in US history, which ignited the worst financial crisis since the Great Depression.

A “blur” is how Bernanke describes the events. Bernanke recalls the episode in a 600-page memoir, “The Courage to Act: A Memoir of a Crisis and Its Aftermath,” scheduled to be published Monday. The Associated Press obtained an early copy.

Top executives of major banks took part in the marathon talks with regulators. Bernanke followed the talks from his Washington office, conferring on speaker phone with officials in New York, munching on sandwiches and taking catnaps on the burgundy leather sofa in his office.

“All we can do is put foam on the runway,” Bernanke quotes Geithner as saying, describing measures taken to prevent a fire after a jetliner crash-lands.

Bernanke’s memoir, which he began after leaving the Fed in February 2014, revolves around the crisis in which the government took over mortgage giants Fannie Mae and Freddie Mac and provided hundreds of billions in aid to the biggest US financial institutions.

He notes that the taxpayer-provided bailouts were widely unpopular. He would wince, he said, when he saw bumper stickers saying, “Where’s my bailout?”

But the book amounts to a defence of the bailouts and the Fed’s rescue programme for the economy. Late in 2008, the Fed cut its key short-term rate to a record low near zero, where it remains today, to support the economy. It also launched a bond-buying program to try to drive down long-term borrowing rates. Bernanke argues that without the government’s extraordinary assistance, the Great Recession, as severe as it was, would have been worse.

Published in Dawn, October 4th, 2015

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