Greece's Debt Crisis: Ben Bernanke Looks at Goldman Sachs and Wall Street

WASHINGTON, Feb. 25, 2010 — -- The Federal Reserve is examining whether Goldman Sachs and other Wall Street firms could be making Greece's financial crisis worse -- as well as the global economy -- by betting that the struggling Greek government would default on its debt, Fed chairman Ben Bernanke told Congress today.

At a Senate Banking Committee hearing this morning, the panel's chairman, Christopher Dodd, D-Conn., expressed worry that banks and hedge funds have been using credit-default swaps to bet that Greece would default on its debt.

"We have a situation in which major financial institutions are amplifying a public crisis for what would appear to be private gain," Dodd said.

"We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," said Bernanke. "Using these instruments in a way that intentionally destabilizes a company or a country is counterproductive."

The hearing -- Bernanke's second in as many days as he delivers his semi-annual report to Congress -- began with Dodd and the panel's ranking Republican, Richard Shelby of Alabama, calling on the government to do more to bolster America's economic recovery.

"I think I can sum up this recovery in three words: not good enough," Dodd said.

Shelby said, "Too many Americans are unemployed or underemployed."

Later, Bernanke warned lawmakers that the recent series of severe snowstorms in the Northeast could have an impact on upcoming jobs reports.

He also said it was important to stabilize the government-backed mortgage giants Fannie Mae and Freddie Mac,.

On Wednesday Freddie Mac reported a $25.7 billion loss last year. The Treasury Department has essentially agreed to provide a blank check to the government-backed lenders by removing the cap for federal support.

"There's really no other source of mortgage securitization at this point," said Bernanke. "But certainly this is not a sustainable situation, so I think it's important that we move toward clarifying their long-term status."