Bernanke grapples with Greenspan as Volcker scorns Fed bailouts

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Apr 21: The event was a 2002 conference at the University of Chicago to celebrate the Nobel laureate Milton Friedman's 90th birthday. When Ben S Bernanke rose to speak, he said that the Federal Reserve, of which he was then a governor, had come around to Friedman's view that the central bank's blunders were to blame for the Great Depression. "We're very sorry,'' Bernanke said, prompting laughter. "But thanks to you, we won't do it again.''

Bernanke, a longtime scholar of the 1929-to-1933 panic, now has the unwelcome task of trying to keep a new financial calamity from turning into a full-blown depression. What started as a meltdown in the market for subprime mortgages has turned into a worldwide credit and economic crisis.

Bernanke, now the Fed chairman, has responded with the most-aggressive expansion of the Fed's power in its 95-year history. Since last August, Bernanke, 54, has twice cut interest rates by 75 basis points, made Federal Reserve loans available to investment firms for the first time since the 1930s, lowered the rates at which banks can borrow from the Fed and launched an unprecedented rescue of Bear Stearns Cos, the struggling investment bank. (A basis point is 0.01 percentage point.)

To prevent a wider crisis, the Fed risked the US government's money by lending $29 billion backed by Bear's mortgage-backed securities. The loan was an incentive to JPMorgan Chase & Co to buy the 85-year-old bank.

While Bernanke's attack on the US economic malaise has been fierce, friends say the Fed chairman himself is anything but. "He is very even-keeled, with a pleasant demeanor, a level temperament,'' says Richard Newell, an economist at Duke University who studied under Bernanke at Princeton. "He's not inclined to hit one over the head with the depth of his knowledge -- that makes him an effective communicator.'' Bernanke's rate cuts were followed by the release on March 31 of a sweeping proposal by US Treasury Secretary Henry Paulson to revamp government supervision and regulation of the financial system. Paulson endorsed the Fed's moves to stabilize the economy and proposed the central bank be given a permanently expanded role as watchdog over the entire financial system, including commercial and investment banks, insurance companies, hedge funds and mutual funds.