MW: No 'lasting' recovery without more aid to banks
Financial crisis persists, Bernanke says in sobering talk
There will be no lasting recovery without further government action and funds to strengthen the financial system, Federal Reserve chief Ben Bernanke said Tuesday.
The timing and strength of economic recovery "are highly uncertain," Bernanke told an audience in London. The text of his speech was released in Washington.
In what's likely to be a sobering message to Congress, Bernanke said that the significant government assistance to date hasn't brought the financial crisis to an end.
"With the worsening of the economy's growth prospects, continued credit losses and asset markdowns may maintain for a time the pressure on the capital and balance-sheet capacities of financial institutions," Bernanke said in a speech to the London School of Economics.
The next step in the battle against the crisis in financial markets is to get "toxic assets" off institutions' balance sheets, the top U.S. central banker said.
This may require additional government outlays -- presumably above and beyond the $700 billion fund set up by Congress last fall.
Bernanke said that there are several ways in which troubled assets can be removed.
One way would be to set up a "bad bank" with the purpose of purchasing these assets.
The government could also buy the assets or provide guarantees under which the taxpayers would absorb some of the losses.
Even though the Fed has undertaken several unconventional methods to battle the financial crisis, no end is in sight, Bernanke said.
On a related note, coordinated government policy responses will be critical to turning the economy around, he said.
President-elect Barack Obama's proposed economic stimulus plan "could provide a significant boost to economic activity," Bernanke said.
He also stressed the Fed still have power to fight the financial crisis and economic downturn even though its federal funds target rate canned be reduced "meaningfully further."
He said that he expects inflation to moderate further and that the Fed would make sure that its "exit strategy" from its unconventional easing would be accomplished in a smooth manner.
