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tv   Wall Street Week  FOX  December 13, 2015 9:00am-9:30am EST

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gary: welcome to "wall street week," the show of record for long-term investing. the federal reserve protects this country' s financial system and your money. wednesday, the fed will announce if they are raising interest rates. if they do, it will be the first time in nine years. anthony: wall street will be paying close attention to the fed' s decision. today, we go more in-depth with a man who spent eight years making these hard decisions, former fed chairman ben bernanke. >> this show has never been solely about investment. we talk about anything affecting people and their money.
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city, the new "wall street week." anthony: we are pleased to welcome former federal reserve chairman dr. ben bernanke. >> if we were going to talk about the intersection of main street and wall street today, they need each other, is that fair to say? dr. bernanke: there was this feeling during the crisis, which i understood, that the fed was helping wall street and ignoring main street. we were talking before how credit is essential to the functioning of the economy. if the financial system collapses, if no credit is available, if there' s a panic that runs through the entire system, it is bad for wall street but it means that main street is going to suffer severely. >> big financial panics always lead to really deep recessions. our efforts to stabilize the financial system, our only goal
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economy would prosper. >> when you have a financial panic and people start to lose their money, you get a balance sheet recession. people say, i' m worth less money. i think you did a fantastic job by lowering rates to create some reflation of those assets and get people more comfortable. as you get the restoration of assets, people feel better and spend. the corporations refinanced. we did have a problem in housing. some of these people did not have enough collateral to refinance their homes at lower mortgage rates. that was a problem for the fed. is that fair to say? dr. bernanke: yes. one of the things we did accomplish was to support housing construction. about one quarter of homeowners were "underwater" which meant that their mortgage was worth
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>> is that getting better now? dr. bernanke: much better. foreclosures are below average. >> the demographic shift as a result of 2008, there' s an abnormal number of people still renting that are still fearful to put a down payment down and buy a house. that talks to this whole idea of savings. why is it bad for an economy if too much money is being saved and not being spent? dr. bernanke: there can be times when saving is high because people are afraid to spend. they are not spending any normal level. when people aren' t spending enough, there' s not enough demand for products and you get a recession. normally, i think savings is a good thing, but only if you have a full employment economy. if people are worried about
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>> so the fact that most people are saving more money, you think the savings from lower oil prices, the economics shows that it is being saved. that is still the scars of 2008. that is not harmful to the economy or it is? dr. bernanke: if consumers are really cautious and unwilling to spend, that is harmful in the short run at least because businesses don' t have the demand. it is kind of a vicious circle. >> what is the cure? dr. bernanke: confidence, recovery, just a normal recovery over time, but also, the government can help with monitoring policy. if the fed keeps interest rates at a level that supports housing construction and car purchases, and on the fiscal side, during a recession, it can be helpful to spend money on infrastructure or cut taxes. >> we' ve had seven years of
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if we were to have a slowdown in the economy, there is some question that the fed doesn' t have any bullets. what is your reaction? dr. bernanke: secretary summers has this idea called secular stagnation, where this is basically permanent. >> that is not your view? dr. bernanke: i think eventually, the rates will pick up. as the economy strengthens, the rate of return is going to improve. i agree with him that right now there are not enough good investments. i think over time it will get better. >> how do you we igh the positive and negative of a stronger dollar in terms of how it impacts certain parts of the economy? dr. bernanke: when the fed started doing monetary policy, everyone was saying, that is going to kill the dollar.
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because our economy is strong. the fed doesn' t look at the dollar alone. it doesn' t look at the cost of imports alone. it is looking at the overall economy. the question is, are there other parts compensating? >> i think the response will be, tell the cfos to do a better job. dr. bernanke: somebodies got to be on the long and short side of everything. >> the u.s. banking system is doing really well because people know that it is a healthy system. i still think the fed was asked to do too much. too much of the burden was put on the fed. >> "wall street week" is sponsored in part by hightower, an unobstructed view. >> imagine a business built on the premise that delivering straightforward financial advice is the right thing to do, rising above the discord of an industry compromised by conflicts of
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hightower is the new blueprint for financial advice. we live by the fiduciary standard, a legal pledge to put our clients first, not because fiduciary is the latest fad, but because it is what we were built to do. >> i used to dread getting up and going to work. >> i was tired. >> i started looking for a business that i believed in. >> they helped me create a business plan. >> they really taught me how to think big. >> they helped me take the unimaginable. >> i' m here because of score. >> we are back with ben bernanke. dr. bernanke: our economy is growing a lot faster than the other economies, because of what the fed did.
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starting in 2008-2009 in cutting interest rates and providing monetary policy to help the economy recover. i still think the fed was asked to do too much. too much of the burden was put on the fed to help the economy recover, but we did all we could. >> what you' re saying is we needed more fiscal response from congress and the executive branch to help fortify the economy. i think that is fair to say. >> most people in the industry think the crisis started when the hedge funds collapsed in the summer of 2007. do you agree with that? dr. bernanke: before that, we did know that house prices have been very high and were beginning to climb. they began falling in 2006. we also knew that subprime mortgages were not doing well. what we didn' t appreciate was that this was going to trigger a broad financial crisis, a panic
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we only began to see that in the summer of 2007. >> were members of the fed having communication with the executives running the various funds? dr. bernanke: all the time. not necessarily mean personally, but bank of new york where tim geithner was the president , hank paulson in the treasury, lots of senior staff, kevin worsham who was a member of the board of governors worked at morgan stanley, and he was in touch with people in wall street. we had great intelligence on what was going on, but even people on wall street didn' t have that clear a vision. >> i remember sunday night in the city when it was evident that lehman was going to collapse. it feels like yesterday to me. tell me about that night for you. dr. bernanke: we were worried that if it failed, it would
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another level and create a huge problem for the economy. we tried to save it. we used the same strategy we used with another company that year and brought two potential buyers to new york to try to get some kind of deal done so they would take it off the market. we also had about a dozen wall street ceos ther e to work out some kind of solution for lehman. unfortunately, when bank of america, the company that was looking at lehman, looked in the books, they found too much red ink. there were too many losses for them to buy. bank of america ended up buying merrill lynch. the other company that was interested in lehman was barclays, but the british regulators said, there' s no way you' re going to buy that company. we didn' t have a buyer.
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t have any capital. in the end, it failed, created a lot of problems in the markets. >> put it in the context of history, like the panic of 1907, or the great depression of 1929 , the impact that it has on the psychology of the market area and -- of the markets. dr. bernanke: the federal reserve was created precisely for the purpose of addressing banking panics. in the old days, people lost confidence in their bank and there was no deposit insurance, so people would line up, pull out their money, and the bank would fail because they couldn' t pay everybody off. >> the bank may have had good collateral. it was just a liquid. that imbalance was creating the crisis. dr. bernanke: they created a
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run, they would take their loans which couldn' t be sold, but they would offer them as collateral to the central bank, bank of england, or the fed, and in return, get cash to pay off their depositors. it was a way of stopping a run. central banks were created for that purpose. the idea of addressing financial panic was not a new idea. >> in your book, you write about being a student of this. now you are meeting a financial panic and a balance sheet recession which could lead to another great depression. you and the federal reserve are taking steps to stop that from happening. tell us the steps you had to take. dr. bernanke: the first thing we tried to do was be a lender of last resort. investors were just running away from risk every way they could. everybody wanted cash.
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nobody wanted to hold other assets. >> we live in a society of fear and greed. dr. bernanke: way on the fear side. >> you are trying to bring people back psychologically. dr. bernanke: what the fed was trying to do was make sure that companies, credit suppliers, got the funding they need it. we lent against good collateral to banks. we lent against good collateral to securities dealers. ultimately, we would lend cash to the money market funds, the commercial paper market. all different kinds of markets and institutions, trying to make sure that firms have the funding they needed to offer credit and stay in business. >> explained to our viewers why there was a need to do that. dr. bernanke: it was a modern banking panic. in the old days, cash was king. when people would pull their money out of the bank' s and the banks couldn'
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now we don' t have that because we have deposit insurance. >> one of the risks then was that these institutions were too big to fail. is that still a concern? dr. bernanke: it is still a concern, but we are making progress on that. a couple of things. one is that the big firms have to hold a lot more capital. they have to have bigger equity buffers. if they lose money, they are losing their own money for a long time before they get to the point where there' s concern about solvency. the other thing which is important is that among the laws that were passed after the crisis were some new rules that allow the fed and the fdic to wind down a failing firm more safely. the problem with lehman was that it collapsed in a way that created this huge panic.
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to shut it down in a safer way that had more attention paid to the rest of the system, we could have done a better job of that. >> would have caused less of a panic. dr. bernanke: if the government knows they can shut a firm down without creating a broad panic, they will be more inclined to do that. >> carl icahn was on this program. here we are, seven or eight years post crisis, still too big, and poses a significant risk to the financial system. any thoughts on that? dr. bernanke: i do know that the process of repaying the fed and the government the money that aig borrowed to stay alive, it did sell off a lot of subsidiaries. it is a business decision whether it should be even smaller. one of the encouraging things is
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make it more costly to be big have encouraged some of the big firms to shrink. >> so smaller may be better in certain cases. dr. bernanke: big firms provide important functions. small banks cannot necessarily provide the credit that a multinational firm needs. >> you also don' t want the united states to have financial institutions that are a disadvantage to the global institutions. dr. bernanke: there is the question of our industry competing with other industries, but it is really important for the system to be safe and strong. what we found, even though the united states has more capital and more restrictions on banks, the u.s. banking system is doing really well because people know it is a healthy system. >> coming up next week, we will sit down with presidential hopeful jeb bush. >> like us on facebook.
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"wall street week" is sponsored in part by coke industries. >> from fuel to durable tires to the blacktop itself, we help make it all better. if life is really all about the journey, let' s ride. we are koch. >> checking your fantasy league? >> just my 401(k) statement. >> i can' t save anything. >> i' ve got a pizza for todd. >> can anybody spot me? >> before the state, heirloom tomatoes, there' s our commitment to helping america' s farmers feed a hungry planet. we are koch . >> quick question about baseball. you still follow it.
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dr. bernanke: the washington nationals, who moved to washington 10 years ago. >> what was the position you played? dr. bernanke: basically i played the bench. [laughter] >> sounds like gary and my career early on. batting 16th. >> growing up in a small town, tell us about some of the people who helped shape who you are. dr. bernanke: my parents, obviously, some friends, but i was kind of isolated to tell you the truth. i did a lot of reading. a lot of my influences came from books i read. we were a jewish family in the south. weren' t many of us in that town. my father was the town pharmacist. he gave people credit. a lot of people couldn' t pay. he would talk to them about what they could pay.
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still a lot of economic challenges today. it was mostly agricultural. tobacco, cotton, a lot of hard work. there were some textile mills, but they basically disappeared with foreign competition. it kind of didn' t get much of gotten. it was a hard place. >> giving people the ability to borrow what they couldn' t afford, did that years later shape your thinking about interest rates and how the availability of credit is so important? dr. bernanke: i thought about it because my father was a small businessman, but he was very committed to what he was doing. there were some chain stores coming in on the highway. he knew he was going to get competition. he and his brother sold the main street store and borrowed money
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away from main street so they could keep the customers they had. he had to get a bank loan for that. as a small businessman, he needed access to credit. >> years later, that did have an impact on you when you were thinking about credit in the economy. dr. bernanke: credit is critical. you can' t make an economy work without credit. that was my research as an academic. that was my concern. that credit was going to freeze and people were not going to be able to get a loan if they needed one, or get the kind of financing they need it. >> basically the growth in the society. people can invest in their future by borrowing and using their cash flow to create assets for themselves, which is a big part of the american dream. dr. bernanke: people talk about borrowing as a bad thing, but if you create an asset, buy a
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do something that is going to provide income in the future -- >> shakespeare gave it a bad rap . neither lender nor borrower be. but when you are investing in your company or your home, this is a great thing. >> let' s talk about the title of the book. how did you come up with that title? dr. bernanke: my wife suggested it. we talked about it for a wild. the thing about the crisis, there were some tough decisions we made. very high stakes. they were made under great uncertainty in a tough political atmosphere. there were people at the fed, at the treasury, the president, some members of congress. often, the toughest part of the decision was having the courage to take action deer -- to take action. >> you reference stan fisher in the book. is that the stan fisher
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dr. bernanke: stan fisher was my professor when i was a grad student at m.i.t. >> tell us about the book he recommended. dr. bernanke: he was an outstanding professor. by the way, he was a thesis advisor not only for me, but for mario draghi, the president of the european central bank. i went to talk to him about macroeconomics and so on. he gave me a copy of milton friedman' s book, "a monetary history of the united states." >> classic book. dr. bernanke: it looks at the history of the fed and monetary policy and gets into the details of that. it was 800 pages or something. he said, read this. i loved it. since then, i' ve always thought it was really helpful to have
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>> there was a central thesis in that book. dr. bernanke: central thesis was that monetary policy, control of the money supply, whether it is the gold standard or the central bank, is critical to be done right. if it is not done right, you can get bad outcomes. i thought this was something important that i wanted to understand. >> i' m carl icahn. >> i' m ben bernanke. >> larry summers. >> david rubenstein. >> dave the tray is. >> i' m watching "wall street week." >> iwatch "wall street week." >> i was a guest on the original "wall street week." >> i' m pleased to be on the brand-new one. >> you should too. >> thinking of investing in
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>> over the years, i' ve watched a lot of testimony. we are not going to call out any names, but some of the questions you would get, i would watch you. you would have some of these politicians asking questions about the economy, the stock market. what were you thinking with some of those questions? dr. bernanke: my job -- before i was a fed member and chairman, i was a college professor. my job was to explain it. >> you were the chair of a department. you had to deal with those sorts of personalities. dr. bernanke: that was the faculty. that was another question. but you know, explain to students -- in their defense, congressmen are not economists. they have to learn lots of things. i did my best to explain. i felt people had to understand
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>> alan greenspan and you once described the federal reserve chairman' s job as being under house arrest with nice jailers. is the job suffocating? dr. bernanke: we do have security, which means you can' t go walking by yourself and take the subway, things like that. i tried to keep myself attuned. >> one of the things we do at the end of the show is play word association. >> the 2016 election. dr. bernanke: i' m watching it with some interest. right now it doesn' t seem we are too far along. >> your favorite president? dr. bernanke: lincoln, by far. talk about courage to act. a man who, despite tremendous opposition, did what he thought was the right thing to do. in the end, he had a tremendous impact on the country.
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quote on your desk. dr. bernanke: something like, i' m going to do the best i can. if i spent all the time necessary to answer my critics, i wouldn' t have time for other business. >> not only the courage to act, but to put the blinders on. dr. bernanke: i thought the best thing was to do the right thing, because in the long run, people would understand. >> favorite meal? dr. bernanke: probably cheeseburger and fries. >> we are to finish up with pinball. dr. bernanke: i like to play pinball. when my wife and i were first married, we were so poverty-stricken that our idea of a big night out was to play pinball for a couple hours. >> we want to thank dr. ben bernanke for spending time with "wall street week."
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. (applause) well god bless you. it's always a joy to come into your homes and if you're ever in our area, please stop by and be a part of our services. i promise you we'll make you feel right at home. but thanks so much for tuning in and thank you again for coming out today. i like to start with something funny and i heard about this group of elderly ladies way up in their eighties. they were driving down the freeway together when they got pulled over by a police officer. the officer said to the woman driving, "ma'am, do you realize you're only going 35 miles an hour?" she said, "yes, officer. i realize that." he said, "well, why are you going so slow?" she said, "that's what the sign says." he kind of laughed and said, "no, ma'am.
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