Excerpts from Bernanke’s testimony

Here are excerpts from Federal Reserve Chairman Ben S. Bernanke’s testimony Wednesday before the Joint Economic Committee of Congress:

“A recession is possible. But a recession is a technical term defined by the National Bureau of Economic Research depending on data which will be available quite a while from now, so I’m not yet ready to say whether or not the U.S. economy will face such a situation. However, it’s clearly a period of very slow growth, extending back to the fourth quarter of last year, and we are trying to set our policies appropriately for that situation.”

“We did not bail out Bear Stearns. Bear Stearns’ shareholders took a very significant loss. An 85-year-old company lost its independence and became acquired by another firm. . . . We did what we did because we felt it was necessary to preserve the integrity and viability of the American financial system, which in turn is critical for the health of the economy. Anybody who wants to borrow for a mortgage, for a house or for other purposes, anyone who has an investment account with stocks and other assets in it, anyone whose company wants to acquire capital to expand employment needs to have a healthy, functioning financial system. What we did, always in my mind, was what was the best thing for the American public.”

“The financial crisis, I think, is the unwinding of what was an excessive credit boom in the years up through middle of last year. For a variety of reasons, global interest rates were quite low, and that generated strong efforts to reach for yield, as it was said, and so there was a lot of risk taking. There was a lot of financial innovation. And the result I think was some unsustainable investment, some unsustainable asset creation. We’ve seen the unwinding of that. That is in some ways positive. But on the other hand, the contraction of credit and the restriction of financing that we’ve seen associated with that has slowed the economy and has had adverse effects on families, as you indicate. We are trying to find a financial stability. The Fed is working as best we can to stabilize the economy and to stabilize the financial system.”

“So we are fighting against the wind, because the forces that we are seeing, this unwinding of the credit boom, is making credit more difficult to obtain and increasing spreads and so on. But I do believe that our monetary policy actions and our other actions have had the effect of at least offsetting significantly the head winds coming from these financial factors and I believe generally providing some stimulus.”

“In terms of the fiscal stimulus package that was put in place, it’s a fairly significant package which should add something like a percentage point, or even a little more, to growth in the second half of the year. . . . On that particular issue, I think we ought to give that some time to work before we take additional steps.”