RENEE MONTAGNE, host:
The Fed's response to the crisis in the housing market was chairman Ben Bernanke's biggest move since he took office a year and a half ago. It comes in a week of intense publicity about his predecessor, Alan Greenspan, who's just released his much-anticipated memoir, and he's making the rounds on TV.
(Soundbite of TV show, "The Daily Show with Jon Stewart")
Mr. JON STEWART (Host, "The Daily Show with Jon Stewart): Our guest tonight, he was the chairman of the Federal Reserve Board from 1987 until 2006. Please welcome to the program, Alan Greenspan.
MONTAGNE: That's Jon Stewart, welcoming Alan Greenspan to "The Daily Show."
We welcome to our program, David Wessel. He's the economics editor of The Wall Street Journal. And he joins us on the line.
Mr. DAVID WESSEL (Deputy Bureau Chief, The Wall Street Journal): Good morning.
MONTAGNE: Now, Alan Greenspan became known as the man whose words move the world's markets. With this rather bold rate cut, has Ben Bernanke finally emerged from Greenspan's long - and as of this week - continuing shadow?
Mr. WESSEL: I think he has absolutely has. It's all on his watch now, and he'll make his own mistakes.
MONTAGNE: Well, in interviews about his book, Greenspan admits he knew about abuses in subprime lending, although he didn't quite admit it was a mistake. He's been criticized for ushering in an era of easy money by lowering interest rates for three consecutive years in the early '90s. How much is he to blame for what's happening now?
Mr. WESSEL: Well, I think there are two charges against Mr. Greenspan's tenure. One is, as you said, that he kept interest rates too low for too long as a result of his campaign to avoid what we call deflations, steadily falling prices. I think one thing that's important to remember is that one of his accomplices in that was a Fed governor named Ben Bernanke, who was a very strong advocate of that policy. Mr. Greenspan's defenders would say, look. Maybe he did a little too much, but the alternative was not doing enough, and we criticize him for that.
The second thing - and the late Fed governor Ned Gramlich has made this point -is that Mr. Greenspan is a regulation hater - a deregulator. And he resisted pressure from inside the Federal Reserve to set up consumer protections that might have prevented some of these subprime mortgages that turned out to be bad ideas from being made.
So he definitely had some responsibility, but whether a different central banker would have made different decisions is really awfully hard to say, and a lot of 20-20 hindsight.
MONTAGNE: And you say Ben Bernanke, though, was there, in effect. How is Bernanke's behavior different now from Greenspan's?
Mr. WESSEL: Before yesterday, people said that Mr. Greenspan was too quick to respond to market moves, and Mr. Bernanke was too slow. I think that is no longer seen as the view. Mr. Bernanke responded very forcefully to the risk that a downturn in financial markets would turn into a downturn in the economy. So I think now the difference is a much more of style than substance.
MONTAGNE: Okay. So Bernanke has made his big move. Do you think cutting the interest rate will succeed in staving off a recession?
MR. WESSEL: If we're going to have a recession, it's probably too late for the Fed to stop it. A rate cut will minimize a recession or keep the economy growing a little faster than it would have otherwise. The big question now is whether the Fed's rate cut does enough to return confidence to financial markets so that banks will actually begin lending not only to customers, but to each other.
One of the extraordinary features of this episode is that banks have been unwilling to lend to each other in the inter-bank market because they're afraid that the other bank has some big subprime mortgage problem that's going to cause problems.
Mr. Bernanke is trying to keep the market functioning, provide a little juice so that things can return to normal. If he does that, he will avoid a recession. If it's not enough or of it was too late, he won't.
MONTAGNE: One last question, David. Do you think Ben Bernanke felt pressured to cut the interest rate, not just to stave off an economic recession, but also for the sake of his own reputation?
MR. WESSEL: I think he felt pressured not to cut interest rates to protect his reputation. Mr. Bernanke does not want to be seen as Mr. Greenspan came to be seen, as somebody who will protect investors from bad decisions. He would delay cutting interest rates, because I think he was trying to shake the world the notion that the Fed would always come in and rescue. The pressure he felt was the right kind of pressure. He felt that he could no longer maintain that position because the economy was at risk, the lives of working people and their families would be affected if he didn't do something. And I think that's the pressure that led him to cut rates.
MONTAGNE: David, thanks.
MR. WESSEL: A pleasure.
MONTAGNE: David Wessel is the economics editor of The Wall Street Journal and a regular guest on our program.
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