In the fall of 2008, the US economy spiraled into its worst recession since the Great Depression.
Years of lax lending standards helped inflate a credit bubble that burst, bringing down banks, seizing financial markets, and preventing even the healthiest companies from getting desperately-needed liquidity. Massive government bailouts and emergency stimulus programs followed, helping to stabilise the system. But only after many lost their jobs and well-beings.
Federal Reserve Chair Ben Bernanke was on the front lines seven years ago as everything went down. No longer a policymaker, Bernanke is letting his hair down in his soon-to-be-released memoirs, “The Courage to Act: A Memoir of a Crisis and Its Aftermath.”
Ahead of the release, Bernanke spoke to USA Today’s Susan Page about his time at the Fed during the financial crisis.
Page asked a question that’s been repeatedly asked for years.
“Why didn’t anyone go to jail?” she asked Bernanke. “Should somebody have gone to jail?”
“Yeah, I think so,” he said.
Bernanke explained that the Fed did not have the authority to jail anyone. Rather, it was the Department of Justice’s responsibility to do that. And while a few folks here and there went to prison for various violations, it’s largely been the financial entities that have paid the penalties.
“A financial firm, of course, is a legal fiction,” Bernanke explained. “It’s not a person. You can’t put a financial firm in jail.”
“It would have been my preference to have more investigation of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm,” he continued. “In that respect, there should have been more accountability at the individual level.”
The concern is that without sufficient punishment at the individual level, there is little accountability. And with no precedent for such a punishment, we risk people recklessly pushing the system toward a crisis again.
Here’s the whole interview: