Bernanke: Why Is This Speech Different From All Others?

April 14, 2009— -- On the heels of comments from President Barack Obama and top adviser Larry Summers that there are "glimmers of hope" in the economy and the sense of economic "free-fall" is ending, Federal Reserve chairman Ben Bernanke says today that he sees "tentative signs" that the nation's financial decline is "slowing."

"Recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles," Bernanke says in prepared remarks for his speech this afternoon at Morehouse College in Atlanta.

"I am fundamentally optimistic about our economy," he adds.

In his speech, Bernanke takes a cue from the Jewish Passover seder as he attempts to explain the current recession using one of the holiday's traditions.

"In the spirit of the holiday, today I will pose and answer four important questions about the financial crisis," he notes.

Question 1 - How Did We Get Here?

As Bernanke explains it, years ago many financial institutions, with a surplus of funds in the market, were competing aggressively for lenders. The intense competition led some institutions to engage in careless lending. But when the credit boom ended in 2007 due to problems in the subprime mortgage market, things quickly took a turn for the worse.

Foreclosures rose. Lending froze up. Last fall several major financial institutions either failed or came close to failing. Investors lost confidence and stocks plummeted.

"Declining stock values, a teetering financial system, and difficulties in obtaining credit triggered a remarkably rapid and deep contraction in global economic activity and employment, a contraction that has persisted through the first months of 2009," Bernanke says.

Question 2 - What Is the Fed Doing to Address the Situation?

Bernanke points out that the Fed has reduced its key interest rate down to essentially zero and expects to keep it low "for an extended period."

The Fed, he notes, has also taken additional steps, such as providing short-term credit to sound financial institutions as needed and starting lending programs such as the TALF to free up credit for households and small businesses, especially in the form of auto loans, credit card loans, and student loans.