Who’s responsible for the financial crisis that led to the Great Recession? There is plenty of blame to go around, Ben Bernanke, chairman of the Federal Reserve and former chairman of Princeton’s economics department, told a capacity crowd at Richardson Auditorium Sept. 24.
Part of the problem was the private sector’s failure to manage risk, Bernanke said, but regulatory systems also “placed insufficient emphasis on the detection of systemic risks.”
Much of the systemic risk in the 2008 financial crisis originated with the “too-big-to-fail” banks, Bernanke said. To safeguard stability and restore market discipline, he said, those firms must believe that the government will not step in to bail them out, and the key is creating a framework where institutions can fail without widespread collateral damage.Bernanke stressed the importance of economic research, saying it has “proved invaluable to policymakers attempting to diagnose and respond to the financial crisis.” He urged more study of asset-price bubbles, market liquidity, and decision making during financial panics.