Ten years after the financial crisis: Reflections by Bernanke, Geithner and Paulson

Ten years after Lehman Brothers’ bankruptcy, former Federal Reserve Chairman Ben Bernanke, former New York Fed President and Treasury Secretary Tim Geithner, and former Treasury Secretary Hank Paulson reflect on the responses they led to the 2007-09 global financial crisis and ensuing Great Recession. Here are highlights of their wide-ranging conversation with Andrew Ross Sorkin of the New York Times and CNBC, hosted by the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution and the Yale Program on Financial Stability. (You can watch the whole 90-minute interview here.)

Memories of the Financial Crisis

Tim Geithner on the hardest moment of the financial crisis

Asked to recall the worst moment of the crisis, Geithner recalled sitting at breakfast with his wife as she read about what had been done the day before and seeing a mix of despair and doubt on her face.

Ben Bernanke gives his bottom line on the government response to the financial crisis

Bernanke says, in hindsight, the government’s response was late, but proved to be successful even though it remains unpopular.

Why didn’t you do things differently?

Hank Paulson on executive compensation

Paulson says that the government couldn’t force banks to take taxpayer-funded capital in October 2008 so it had to make the terms attractive, which is why he didn’t put limits on bankers’ bonuses.

Tim Geithner on whether there’s an opportunity to do any of the crisis response differently

Geithner says that if the U.S. government had waited until there was no option but to nationalize some big banks, it could have attached more strings. Acting earlier so the banks could remain in private hands was economically sound, but politically treacherous.

Tim Geithner on what the Fed can do

Geithner observes that people think the Fed has more power than it actually does. He says there is “a lot of magical thinking about what central banks can do.”

Why didn’t you save Lehman?

Ben Bernanke on the Lehman Brothers failure

Bernanke argues that lending to Lehman was not only beyond the Fed’s legal authority, but also wasn’t feasible.

Tim Geithner on the Lehman Brothers failure

Geithner recalls that some people were initially relieved when the authorities didn’t save Lehman, but he saw it as evidence that the crisis had outstripped the Fed’s power to contain it. They were unable to prevent Lehman from failing.

Hank Paulson on communication during a crisis

Paulson explains why he wasn’t more forthcoming the day Lehman failed. Had he acknowledged the limits of the government’s ability to intervene, Morgan Stanley would have collapsed immediately.

Did the Fed’s asset purchases known as Quantititive Easing create inequality?

Ben Bernanke on quantitative easing’s effects on inequality

Bernanke challenges the hedge fund managers, among others, who argue that the Fed’s QE is responsible for widening inequality in the U.S.