The Libor system is structurally flawed. It is a major problem for our financial system and for the confidence in the financial system. We need to address it.
From Ben Bernanke
One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be.
The Fed needs an approach that consolidates the gains of the Greenspan years and ensures that those successful policies will continue - even if future Fed chairmen are less skillful or less committed to price stability than Mr. Greenspan has been.
Given the extent of the exposures of major banks around the world to A.I.G., and in light of the extreme fragility of the system, there was a significant risk that A.I.G.'s failure could have sparked a global banking panic.
A.I.G. was even larger than Lehman, with a substantial presence in derivatives and debt markets, as well as in insurance markets.
A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street.
After the 1929 crash, the Federal Reserve mistakenly focused its policies on preserving the gold value of the dollar rather than on stabilizing the domestic economy.
The downturn following the collapse of Japan's so-called bubble economy of the 1980s was not as severe as the Great Depression.
Central bankers got it right in the United States in 1987 when they avoided deflationary pressures as well as serious trouble in the banking system.
After a long period in which the desired direction for inflation was always downward, the industrialized world's central banks must today try to avoid major changes in the inflation rate in either direction.
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