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Full CNBC Transcript: Former Federal Reserve Chairman Ben Bernanke Speaks with CNBC’s “Squawk Box” Today


WHEN: Today, Monday, October 5th

WHERE: CNBC's "Squawk Box"

Following is the complete unofficial transcript of a CNBC EXCLUSIVE interview with former Federal Reserve Chairman Ben Bernanke in his first TV interview since leaving office. Following are links to the interview on,, and Additional links are available here.

All references must be sourced to CNBC.

BECKY QUICK: Welcome back to Squawk Box everybody, this is CNBC, first in business worldwide. I'm Becky Quick along with Joe Kernen and Andrew Ross Sorkin. And a lot has happened here over the last 20 years with Squawk Box. Today, for the first time in our 20 year history, we are honored to welcome former Fed chairman Ben Bernanke to our set, in the financial capital of the world. Sir, thank you so much for being here today.

BEN BERNANKE: Great to be here. Thanks for inviting me.

BECKY QUICK: We have a lot to talk about. Obviously, your book is what's kicking this all off, The Courage to Act. We're gonna talk about that in just a moment. In the meantime though, this is, we should mention, his first live television interview since leaving Washington. We're gonna get to all of that in just a moment, but first, Joe has a roundup of this morning's top stories. Joe.

JOE KERNEN: We really need to do these while he is here okay. News just breaking. Twitter offes-- officially naming Jack Dorsey, the guy with the-- like, the Grizzly Adams beard-- he thinks it looks good, as CEO of Twitter. He will remain on the board-- but will no longer act as chairman. Dorsey will continue-- oh, now see? See what I mean? That's so much better. He will remain a chief executive of Square. Maybe we can look at one of the other ones to show you--

STEVE LIESMAN: Way to talk to our guest, Joe, with a comment on beards.

JOE KERNEN: His beard is nice. He's got the hipster-- heget past any velvet rope in the city. Here are--

BECKY QUICK: Jack Dorsey has the ZZ Top going almost

JOE KERNEN: It's, like, a ZZ-- it's, like, the-- almost-- anyway-- other stories-- investors will be talking about today-- Nelson Peltz building a $2.5 billion stake in General Electric his Trian fund-- is calling on GE to step up cost cutting-- consider getting rid of even more of its finance arm, and be more cautious on acquisitions. GE CEO Jeff Immelt says his company maintains an open dialogue with all of its shareholders. Trian's Ed Garden will join David Faber on Squawk on the Street-- later this morning. We were gonna talk-- maybe we will, to Jeff Sonnenfeld at some point. He says he's very positive about this. That not all activist's moves areyou know, not a good thing. And that he says Jeff Immelt is, in fact, quoting no Carly Fiorina. Anyway, Potash- was throwing its offer for German rival K+ S, which had refused to negotiate on the bid. Potash says it's now giving up, blaming the big decline in commodity prices and the lack of management-- by K+ S Management.

ANDREW ROSS SORKIN: Okay. Now, let's turn to our newsmaker of the morning. Ben Bernanke served as chairman of the Federal Reserve from January, 2006 through January, 2014. He took the helm as stocks and the housing market were soaring to record heights. Not long after that, he had to help rescue the nation from the brink of financial collapse. Charting the course of his tenure at the Fed from the day he took the reins from Alan Greenspan till the day he passed the torch to Chair Yellen, the DOW gained about 45%. But tracking the markets from the depths of the great recession in 2009 until his departure, and you find that the blue chip index more than doubled. That eye popping performance has earned the chairman legions of fans and just as many critics. Nearly two years removed from-- leading the Central Bank, the question, of course, is are many of the problems now facing the global economy the result of years of easy money from the Federal Reserve? China's slow down Europe's debt crisis and the income inequality we keep talking about. They're all issues we are ready to tackle this morning. And so, Steve Liesman is here to begin this conversation with the chairman. Thank you, Steve, and thank you Mr. Chairman for being here.

STEVE LIESMAN: Andrew, thanks. He has been praised by presidents, savaged by critics. Joining us now, former Fed chairman Ben Bernanke. His new book published today The Courage to Act: In Memoir of a Crisis and its Aftermath. Details what he calls the darkest days of the financial crisis, when he, "Stared into the abyss." And the behind the scenes struggle to enact the innovative policies that he believed saved the economy. Thanks for joining us, Mr. Chairman.

BEN BERNANKE: Thank you glad to be here.

STEVE LIESMAN: Let me ask you-- it's the crisis and its aftermath and I wanna focus right now on the aftermath. Are you surprised and are you disappointed that, after six years of 0% interest rates, a $4.5 trillion balance sheet, that this economy still struggles with 2% growth?

BEN BERNANKE: Well, the low growth is coming not from the recession- per se. I mean, we've come back quite a bit. Unemployment's down to 5%. So we've come pretty close to full employment. The slow growth is coming from slow productivity growth. You know-- output for workers has not been growing quickly. And why that's happening, it's not fully understood. It doesn't-- I don't think it has much to do with monetary policy. It has to do with the ways of innovation. We saw slowing in productivity growth even before the crisis. So I think that's part of it. But-- clearly, one of the issues is that-- we've been relying too much on the Fed. The Fed has been the only game in town. It's been doing most of the policy heavy lifting for the last few years. We need to see more- action from other policy makers.

STEVE LIESMAN: But when you think about six years of 0%, wouldn't you have expected at some point in time that there would have been this pop? That we wouldn't be doing what we did, for example, in the first quarter. 0.6% growth and concerns almost every quarter that we're going back into recession.

BEN BERNANKE: Well, we're in a slow growth, low real return economy. Not just in the U.S., but everywhere. And, compare the United States with Europe, compare us with Japan, other industrial countries-- we've been making more progress. I'm not saying things are great. I--don't mean to say that at all. But monetary policy can only do basically two things. It can keep inflation low and stable and could help the economy come back from recession. And both of those things are happening. More growth. It's gotta come from productivity, it's gotta come from capital investment. Those things need some help from other policy makers.

STEVE LIESMAN: Let's talk about--

BECKY QUICK: Just very quickly, a follow-up on that. Is that a suggestion that this is kind of the new normal? That-- it's gonna be very difficult to fix this trend?

BEN BERNANKE: Well-- if you look around the world, it's not just the United States. Real interest rates are low everyplace. And we've got, you know, what I used to call the global savings glut. There's a lotta savings looking for return. There's not that much, you know, in terms of really high return investments available. I think that's not Fed policy. I think that's just where the world is now--

JOE KERNEN: Could be-- could be QE over there too though.

BEN BERNANKE: Well, if--it were true, if there were lots of high return investments available, then you'd be s-- you know, you'd see more capital investment than you're seeing. So I don't think it can be QE, no.

STEVE LIESMAN: Let's talk about where the Fed is right now, there's-- been a lot of talk about this is the year the interest rates would rise. And along comes a jobs report like last week, 143,000. Much less than expected, down with revisions to the prior two months. How would you, the policy-- as a policy maker have processed those-- that report?

BEN BERNANKE: Well-- you know, the Fed's plan to raise interest rates-- depends both on continued progress in the labor market and also inflation moving up to target, which-- it also depends on progress in the labor market because reducing slack, creating pressure on wages and prices is, you know, the source of inflation-- in their thinking. So-- the bad numbers or mediocre job numbers last couple of months certainly is a negative for that plan, no question.

JOE KERNEN: knowing-- people know you as a very-- great public servant and very, very humble. And-- I read that headline-- on the-- the op-ed of-- of The Wall Street Journal this morning, How the Fed Saved the World, and it was so uncharacteristically you, that—I was never a print reporter, but the editor came up with that, right?

BEN BERNANKE: Right. And your viewers should know that, not only does the op-ed writer not have a chance to write the headline, but I couldn't even find out what the headline was until it appeared in the paper

JOE KERNEN: And what was your response when you saw it?

BEN BERNANKE: Well, my response was, "This is not what I wrote about." What I wrote about was that the Fed has done what it can. Things are not great, but the Fed can't be expected to solve all problems. It's time for other policy makers to join in.

JOE KERNEN: But-- I'd hate to be quoted on that in the future as you Sying that 'cause you remember the cover of the magazine--The Committee that Saved the World was Rubin--

BEN BERNANKE: What can I--

JOE KERNEN: --Greenspan--

BEN BERNANKE: --what can I do about it? I mean-- but again--

STEVE LIESMAN: Write letter to the editor.

BEN BERNANKE: And I'll go on the record here-- I'm on the record saying that it wasn't my headline, it wasn't my intent.

STEVE LIESMAN: I wanna ask you about current policy. There's--a debate out there and I wanna know where you come down. Some people say, as you just pointed out, they've not hit their inflation target, we're in a low growth environment. We need zero percent interest rates. That's what the market would set, even by itself, or something close to that. The other one says, "You know, how can you argue 5.1% unemployment-- -- 2% growth, that there's no rationale at all for emergency level interest rates such as you set in the most dire moments of the financial crisis." Where do you come down in that debate?

BEN BERNANKE: Well, I would just point to the inflation rate. You know-- even if the Fed had no interest whatsoever in growth and-- employment, which, of course, it does, but it has a 2% inflation target. It needs to get inflation up to that target. And-- you know-- easy money is justified by the need to get inflation--up to the target.

JOE KERNEN: Was growth good in the '50s and '60s with inflation under 2%? How can we possibly know what an optimal inflation rate is

BEN BERNANKE: Well, we know that--

JOE KERNEN: What was it in the '50s and '60s?

BEN BERNANKE: It was low.

JOE KERNEN: And they had great, robust growth?

BEN BERNANKE: Yes. But there's many factors involved. And, you know, there's-- you're probably gonna tell me next that-- deflation happened in the 1870s too, which is also true.

JOE KERNEN: I just wonder if we know-- if we actually know what--

BEN BERNANKE: Well, we do know-- we do know, in a world where there's low demand and low real returns, the risk happens that, you know, if inflation is so very, very low that it's close to deflation. The risk is that ordinary interest rates will be low all the time. With very low inflation, ordinary interest rates will be very low. What happens when there's a recession? There's no place to cut. That's part of the problem.

JOE KERNEN: Now you're makin' the argument a lotta other people make about where we are now--

STEVE LIESMAN: Should we raise in order to have some ammunition to cut.

BEN BERNANKE: No no no that doesn't make any sense. If you-- if you raise rates too early and you kill the economy, that doesn't help you.

ANDREW ROSS SORKIN: But the flip side-- and we were talking about this-- this morning, with Trian making investment in GE and suggesting, for example, that they borrow some more money so that they can do more buybacks. You look at what's going on in corporate America, is-- has the policy itself perverted the way businesses act?

BEN BERNANKE: No, I-- don't think so. It's low return economy. Low return, low cost to capital. There's not-- as much capital investment as we'd like, but you've seen housing coming back. You've seen autos being very strong. You've seen the economy-- using up slack, you know? I mean, compare us to Europe, where they didn't do QE --and there's a big difference in unemployment.

JOE KERNEN: But people say that corporations-- at this point, the reason they're not making capital investments is because they're able to buy back their stock at low rates and reduce the outstanding shares, earnings to share growth up. They're compensated on stock prices going up. So instead of doing the long term things like hiring and capital-- investment, that they're financially engineering results because the… And then they also said they're-- they're doing mergers and acquisitions, where-- when you cut employment and you cut manufacturing you're not expanding plans. Okay, so-- so all these things end up being-- a misallocation of where capital would normally go. And that could be part of the problem of why we're not growing.

BEN BERNANKE: No, I don't think so. There's no reason. If you could do mergers and acquisitions and you could also do capital investment, there's no reason why they're, you know, mutually exclusive. And-- it looks to me that again-- you look across the whole range of interest sensitive spending, including capital investment equipment and research and development, by the way, which has come back very strong. You look also at autos and houses and other interest sensitive spending. And it's been enough to help bring us back to 5% unemployment.

STEVE LIESMAN: Ben, I wanna ask a question about-- the critics. They-- appear repeatedly in your book w-- with the antagonists, there's not a single person. And you talk about the crisis giving rise to certain extremism in the political system. When you look back and think about how you handled the critics, are there things that you would've done differently?

BEN BERNANKE: Well, I mean, I did my best to make my case. That's-- really all I can do. I think the one thing that-- as I go back and think about what-- you know, what we did during the crisis, we were so engaged in trying to deal with the, you know, the weekend emergencies and-- the chaos in the markets and in the economy, I don't think we did as much as we could have. We did a lot, but we didn't do as much as we could have to explain to the public what we were doing and why we were doing it, you know? And I went on 60 Minutes, I did a bunch of things to try to explain what we were doing. But still out there was a lot of view that, "Oh, the Fed is just helping Wall Street. They're not helping us," and so on. And I-- you know, I think we had done more of that, maybe some of that-- some of that-- criticism would've been diffused.

STEVE LIESMAN: For the record you didn't do Squawk Box—just to be clear about that

BEN BERNANKE: Well-- well--I wanted to talk to, you know, everybody in the economy, not just investors, so--

STEVE LIESMAN: Viewership is wide-- here. We have a lotta people who watch.

BEN BERNANKE: Yeah, I know.

STEVE LIESMAN: We'll talk about the critics-- a little bit more in the next block.


JOE KERNEN: That's right because when-- we've met before and you said, "Oh, I thought maybe it's just from watching on TV," which means you do watch is

BEN BERNANKE: Oh yeah, of course. Yeah, I do.

STEVE LIESMAN: And there's a lot-- we'll talk about this later, but there's a lot in the book, Joe, about how the role the markets play in the decision making--

JOE KERNEN: Now—how did you get an embargoed copy. You know, Andrew went sneaking around

ANDREW ROSS SORKIN: I went-- I went--Independent bookstore over the weekend.

JOE KERNEN: Well, you know, I don't think I don't-- I don't approve of either one of your actions. Anyway, we will- be back we're gonna ask the chairman if the people who helped cause the financial crisis paid a heavy enough price. Should more CEOs and bad actors be sitting behind bars? And maybe policy makers, congressmen, Fannie and Freddie officials. But we'll tackle-- a lotta things--that the critics have said. Should the Fed have done more to save Lehman? Did the government come down too hard on AIG, and has the era of easy money put the world at-- somebody worked really hard-- on this. And I have to read it because they-- really did a good job. On another major financial crisis, our special conversation with Ben Bernanke continues when Squawk Box returns.

BEN BERNANKE: Yeah, thank you.

JOE KERNEN: Thank you.


RICK SANTELLI, RECORDED: This is America. How many of you people wanna pay for your neighbor's mortgage, that has an extra bathroom and can't pay their bills, raise their hand? How about we all right. President Obama, are you listening?

MALE VOICE: How about we all stop payin' our mortgage? It's a moral hazard. This is, like, mob rule here. I'm gettin' scared.

RICK SANTELLI, RECORDED: We're thinkin' of havin' a Chicago tea party in July. All you capitalists that wanna show up to Lake Michigan, I'm gonna start organizing--

JOE KERNEN: I'm just glad I was-- I was there, but I wasn't really there. I'm like Forrest Gump. I'm looking at everything while You know, the turning down kids at colleges, you know anyway, that was Rick Santelli's famous-- rant from February of 2009. In Fed Chairman Bernanke's new book, The Courage to Act, he talks at length about the withering criticism he feels that he endured from the pundits, the politicians and Wall Street. And at one of our delivering alpha -- conferences, one of the louder-- voices in the crowd was legendary investor Stan Druckenmiller, who said Mr. Bernanke back then-- in his words, was running, "The most inappropriate monetary policy in history of the developed-- world." We're gonna talk about-- this-- and other things. And I'll approach it this way-- Mr. Chairman. Just back to-- to buybacks just real quickly-- I've been told that-- for non-financial companies, that now 50% of their EBIT, of their earnings before income and taxes is now being spent-- on buybacks. And it's doubled in-- in the past couple of years. And they're able to--borrow more money. Previously, when you get to this level, it's possible that-- that it's coincident with another top in a business cycle because -- it's a law of diminishing returns for what they're trying to do. And it's just financial engineering. You have taken issue with the Journal saying you're taking a victory lap and--you've saved the world because at this point, we're not out. And the $4 trillion-- we don't know how we're gonna get out. And we're in the early innings of your-- of your legacy. When will we know that everything's gonna be okay in terms of-- if we were to go into another recession right now, what would we do?

BEN BERNANKE: Well, that's the point. I mean, the Fed has been using easy money because the economy's needed a lotta support. I mean, we had done what Druckenmiller and others wanted in 2009 and raise interest rates, we would still be at 10% unemployment--

JOE KERNEN: Well, Delivering Alpha year and a half ago, so--

BEN BERNANKE: Well, whatever. I mean, you know-- you know, the policy has been right in the sense that the economy clearly needs the support from monetary policy. It could use help from other parts of-- and Druckenmiller's-- protégé Kevin Warsh, my good friend from-- from the board-- you know, he wrote the same-- he's made the same point many times-- that we need to see more help from fiscal policy, from other parts of the government. The Fed can't do it all. That's basically-- you know, that was the argument I was trying to make in the--

JOE KERNEN: I know for a fact that-- that-- that-- that Kevin thinks that part of the continuing sluggishness-- in this sixth or seventh year of a recovery is because of the Fed, not their-- it--

BEN BERNANKE: No, I don't-- I don't really see it. But I would agree that a better policy would be a better mix of monetary, fiscal and other policies. And the fact that the Fed is the only game in town means the Fed has to do too much. The Fed is being relied on too heavily by--

JOE KERNEN: But-- when you--decide that you're going to conjure animal spirits and hopefully the fthe underlying economy catches up with-- the asset-- the price of assets going up from-- easy money, and I understand that rationale. But you must think in the back of your mind that some people are doing things, taking risks, moving out the curves that they shouldn't have done. And-- and there's no way to gauge how much, how big, how-- whether that comes home to roost in a horrific way.

BEN BERNANKE: So financial stability, obviously after what we've been through, is-- a huge concern. The Fed is very, very engaged in this. Under my chairmanship, the Fed restructured itself internally to put lots and lots of staff and resources into-- you know, monitoring the whole system, looking for ways to, you know, address risks. And that's the right way to think about it. I mean, I'm not saying there's not risks. You need to address them. But then the question is, in order to address those risks, would you do the wrong monetary policy for the economy?

STEVE LIESMAN: So-- so would you weigh in on what Stan Fisher spoke about just last Friday, which is this notion of -- should monetary policy be used to create or to worry about financial instability in the sense that you would raise rates now in order to ward off some of the excesses that Joe was talking about?

BEN BERNANKE: Well, it should be a last resort because you have to raise rates an awful lot, for example, to have the kinds of effects, you know, Joe was concerned about. And we don't even know very much about what the linkages are. I mean, you know-- arguably, if the economy's really weak because you raised rates too soon, that could cause financial problems as well. So the right thing to do first is do everything you can on the regulatory, supervisory, macro prudential front. And then, if nothing else works, then you can think about monetary policy. But it's really self-defeating to use the wrong monetary policy--

STEVE LIESMAN: Except there's an assumption in there, which you've already proven wrong and you were at the helm when this happened, which is you missed the bubble. You missed it-- '07. Eventually, as the book chronicles, you come to see the seriousness of what's happening. What assurances can you give anybody in the public that the Fed will see the next bubble coming?

BEN BERNANKE: Well, you can't. You can't. But it wasn't-- you know, I think that misrepresents, you know, what we saw and what we didn't see. We knew house prices were really high. We knew that subprime mortgages were a problem. What we didn't see was the extent to which the financial system was endangered and driven into panic by that problem. Subprime mortgages were a relatively small asset class. But what happened was that they created distrust by investors in all the securitized-- you know, in-- all different kinds of-- of securitized assets. And caused a panic that caused money being drawn out of all different kinds of assets. And that panic is what really created the crisis. So it wasn't the fact we didn't know house prices were high. We knew house prices were high. But what was the problem was the weakness in the financial system itself. And there, the first line of defense has gotta be more capital, tougher oversight. Those sorts of things to make the system more resilient to whatever shock comes along.

BECKY QUICK: Mr. Chairman, can I ask you though-- one of the things you talked about is how you were looking at so many different arenas. How the Fed changed to be looking at all these issues. One of the criticisms has been that the Fed used to have two mandates, a dual mandate. Chairman Greenspan has told us he only paid attention to one 'cause he figured the other would take care of itself. He paid attention to inflation, didn't worry about unemployment. The criticism is that now the Fed has a lotta different mandates, 20 or more if you start looking at the global economy, if you look at what happened with China's stock market, if you look at our stock market, if you look at the strength of the dollar. And those are some of the things that Chairman Yellen has cited for why they didn't raise rates last month. Are we right to be concerned about the idea that there are a lotta different mandates?

BEN BERNANKE: No. No, no. So all those things you mentioned, like the strength of the dollar, are only important because they affect the fundamental mandate. The mandate of monetary policy, given to the Fed by Congress, is maximum employment and stable prices. That's what monetary policy should be aimed at. Now, financial stability, the Fed was actually created in 1913 precisely for the purpose of ending financial panics and promoting financial stability. That is also-- that's the third objective I think. And-- but that's one that shouldn't be pursued, at least in the-- in the first instance, by monetary policy. But should be pursued by regulatory, supervisory and other kinds of actions. And-- and to be tough about that. And I think that's our best chance, really.

JOE KERNEN: Mr. Chairman-- in-- in passing, we just talked about the securitization of things was a natural-- inclination for Wall Street with all its easy money and subprimes seem low. There was demand around the world for product. Yet, you also-- the U.S.A. Today decided to run with your-- populist comment about, "There should've been a lot more individuals go to jail." And-- I'm just not sure that making investments, inflating a bubble-- tryin' to take-- d-- being wrong about-- whether the party's gonna continue forever there, or Chuck Prince, you know, that we're gonna keep dancin' while we're dancing, I'm not sure that's fraud. And-- the populist notion that-- that a lot of these people should have gone to jail. I think it's-- it's counterproductive both to the-- the actual narrative of what happened. Like, who specifically? Which firms--were housing-- AIG maybe because they didn't back their CDOs? I don't know if you can just-- by securitizing and giving product to people that are looking for yield-- when you've got the whole world-- basically caught up in a housing bubble, I don't see how the-- that's not fraud.

BEN BERNANKE: I think that's the first time I've ever been called a populist, I have to say.

JOE KERNEN: Right. But isn't that a populist idea okay-- okay, who-- okay, so which action should people

BEN BERNANKE: So what I'm talking about, what we do know is that, for many big banks, for example, the Department of Justice assessed billions and billions of dollars of penalties--


BEN BERNANKE: --against the firms for, you know, bad behavior of various kinds.

JOE KERNEN: But a lot of them haven't admitted they did anything wrong—they did that because it was a shakedown that doesn't mean criminal culpability for any individuals

BEN BERNANKE: I wasn't saying that all I was saying was that seemed to me like the wrong strategy. If you think there is criminal culpability, then why-- (BACKGROUND VOICE) th—

JOE KERNEN: Where was it though

BEN BERNANKE: well, there was-- look at the LIBOR, you know--look at the dollar--

JOE KERNEN: That's-- that's--

BEN BERNANKE: Well, I-- I-- Joe--

JOE KERNEN: That's not financial--

BEN BERNANKE: I'm talkin'-- yeah, I'm talkin' about traders. I'm talkin' about people, you know, in the whole structure. Not necessarily the CEO.

BECKY QUICK: I think he's arguing your point.


BECKY QUICK: He would rather see them go after the bad actors--

ANDREW ROSS SORKIN: If there are bad actors, he should go after them--

JOE KERNEN: making bad investment decisions and losing money and being----bubble is not--

BEN BERNANKE: Making bad investment decisions is—not criminality

JOE KERNEN: Securitizing CEOs is not fraud. And--


BECKY QUICK: No, but I agree with him. If they think there is criminal activity they should go after them

ANDREW ROSS SORKIN: Yeah, but--gonna continue this conversation. We gotta sneak in a quick break. We're gonna have a lot more-During the break. We have a lot more coming up from Ben Bernanke when we return. He's got a new book out. We are back in just a moment.


ANDREW ROSS SORKIN: Welcome back to "Squawk Box." We have a very special guest with us right here on the set this hour, Ben Bernanke, the former Federal Reserve chairman. He's got a new book out and I spent the weekend reading it. And there's one part of it, of course, that I'm fascinated by which, of course, is the Lehman weekend. We were just talking during the commercial break how everything always leads back to what happened to Lehman. Could it have been rescued? Could it have been not? What really happened? And I think that your book, for the first time, articulates really what happened in a way that I don't think anyone has ever said, and kind of ends the debate. Which is to say that you think there was no way to save it.

BEN BERNANKE: No, I don't think there was. I mean, we tried really hard. And I say, you know, at the time, conventional wisdom in the media, elsewhere, was let it go. Let it go. We knew, we were afraid that it wasn't just the company itself, but the fact that the markets were already in panic. And the failure of that company and all of its, you know, ramifications would raise the level of panic to a whole new level that would be extraordinarily destructive. So we tried very, very hard to avoid it. Unfortunately, the tools that we used in other cases were not available.

ANDREW ROSSS SORKIN: But not only that, you've suggested in the book that some of the view that's taken hold that it could be saved was your own doing. That you and Hank Paulson agreed to purposely be vague about what you actually had done and what you could or couldn't have done. And that that may have led to the misimpression.

BEN BERNANKE: Well, in the few days, I mean, not permanently, but in the few days following the collapse and remember, that week was you know, Merrill Lynch was taken over, AIG was rescued. You had pressure on Morgan Stanley and Goldman Sachs, you had Wachovia. It was an enormously tricky week. And it was our decision, our agreement that we would be reticent about being completely clear that we had not been able to save Lehman because we were afraid that that would create even more panic. That may not have been the right decision. I certainly admit that. But that's what we did.

STEVE LIESMAN: Ben, one of the great values of this book is, as my opinion anyway, is a kind of blueprint for the next crisis. So do me a favor. Go back in a time machine. If you could set up the Lehman weekend in a perfect way for the next policy maker, obviously you don't want it to fail. And you go back in this book to Bear Stearns and say, "They didn't pick up, they didn't get the hint from Bear in time over that six month period." How would you do it differently so that you don't end up with this awful result on Monday morning?

BEN BERNANKE: Well, I mean, as I talk about in the book you know, Lehman was not – it was not a bank. You know, it was a separate investment bank, a broker dealer. And we had no – the FDIC could tell a bank, "Raise capital or we'll close you down," you know, and pay off the depositors, you can't do that. We couldn't do that under the legal structure we had in the summer of 2008. So there's a lot of verbal pressure. I mean Tim Geithner talked to Dick Fuld 50 times. Paulson was always on the phone talking to them, "Raise more capital." They did raise some capital. But we didn't have really the tools to force them to raise more capital. They were trying. They didn't have much luck. And then when the time came in September and they were at the brink of failure, you know, we didn't have the tools to save them. There's been some progress on that, by the way. I mean, there's new tools that were added in Dodd-Frank that we could use in a future circumstance.

BECKY QUICK: But there were also limitations.

STEVE LIESMAN: There are more limitations, too.

BECKY QUICK: Which Buffett and others have been concerned that the Fed would not be able to do a lot of the actions they did the last time around.

BEN BERNANKE: Yeah, no. There's no – that's right. I'm not saying the solution is completely perfect.

ANDREW ROSS SORKIN: When you look at Lehman's assets today, by the way, a lot of them have come back into the positive. Were there numbers or models that you looked at that weekend that – specific numbers where you said, "Okay, we just can't do it"? Where you knew and numbers that were built by the Fed, as opposed to the other banks? I mean, this has been one of the other debates about that period.

BEN BERNANKE: Well, there was a lot of – I mean, the New York Fed, which was where the work was being done – I was in Washington. The New York Fed was where the work was being done. The staff and leadership of the New York Fed was conferring closely with other financial institutions because they had the expertise to look at all these assets and they were all working together to try and evaluate it. But in the end, it wasn't some kind of legal decision are they solvent, not dissolvent. The question was something we could identify. How much do they have in the way of assets that we can lend against? That you know, that are collateralizable. And would that be enough to stop the run? And the judgment was no. If we lend to them, all that's going to happen –

ANDREW ROSS SORKIN: But people will always say it was a judgment, right?

BEN BERNANKE: Well so the judgment was the following. That it looked very likely to us that if we lent to them against the collateral they did have, all that would happen would be the other creditors would pull out as fast as they could and just leave the government with this hulking – you know, smoking hulk.

STEVE LIESMAN: But Andrew, the book doesn't make it close. It wasn't, like, if the Fed put in a billion here or two.


STEVE LIESMAN: It was a $60 billion or $70 billion potential hole.

BEN BERNANKE: That's the point. It was – the firm was, you know, I think clearly insolvent. And certainly, under the pricing that was going on at that time. And for that reason, of course, Bank of America said, "Look, there's a huge hole here. We can't buy this firm." And we didn't have capital. So it's important to understand the timing. Fannie and Freddie, there was a special act of Congress to put capital in Fannie and Freddie. The TARP, which came after Lehman, allowed the government to put capital into other firms. Lehman was in the middle. There was no provision to put it in capital.

ANDREW ROSS SORKIN: To Joe's question about though, crime—

JOE KERNEN: No, let's talk about AIG. Was AIG treated differently in a punitive way because there was a notion that there was – that they were even worse actors?

BEN BERNANKE: No, it had nothing to do with their – what kind of actors they were. I mean, it was a very, very difficult decision for us to intervene with AIG. We felt we had to, given that Lehman had failed and the system was in crisis.

JOE KERNEN: But you didn't open the Fed window for AIG when other non-commercial—

BEN BERNANKE: We did open the Fed window.

JOE KERNEN: The Fed window—

BEN BERNANKE: $85 billion dollars we lent them.

JOE KERNEN: Did they get the access to all the liquidity that—

BEN BERNANKE: Absolutely. They got all they needed in order to survive.

JOE KERNEN: Why did the court rule in favor of AIG?

BEN BERNANKE: The court objected to the fact that we charged a high interest rate and that we took equity for the taxpayer in doing that. But in making those decisions – so we gave them everything they needed to survive. But in being tough, it wasn't because we said, "Oh, these are bad people. We need to punish them." It was because we were doing something for AIG we weren't doing for the, you know, there were thousands of firms in the country that were going bankrupt without any help. Here we are, intervening to prevent this company from failing. And we had to do everything we could to minimize the windfall that we were giving to AIG stockholders.

JOE KERNEN: There're so many – it was a perfect storm because you had the ratings agencies thought that there was, you know, credit default insurance. That allowed them to give AAA. So everybody had plausible deniability for what they were doing.

BEN BERNANKE: Absolutely, yeah.

JOE KERNEN: It was, like, a perfect storm

BEN BERNANKE: It was a horrible week, I have to say.

ANDREW ROSS SORKIN: Do you, you know, talking about crime or the criminal element in this, do you look at a Dick Fuld or any of the CEOs that were involved in this and say, "That was a crime," as opposed to stupidity?

BEN BERNANKE: No, I mean, I wouldn't say that. I think that there was, you know, very irresponsible behavior. For example, as you well know, Lehman just blew through all of its missed parameters. AIG was really betting in tremendously irresponsible ways on the subprime market, not only by ensuring all this subprime all these CDOs, but they were also you know, through the security lending arm, they were also basically doubling down on RMBS, on MBS—

JOE KERNEN: But they weren't supposed to have collateral for all the credit default swaps? Or was it—

BEN BERNANKE: No. They didn't.


STEVE LIESMAN: No. But that really raises –

JOE KERNEN: They didn't, but were they by law a requirement—


STEVE LIESMAN: No, they were not.

BEN BERNANKE: I didn't say – I have no reason to say it was criminal, but I think that it was very, very irresponsible.

STEVE LIESMAN: So Ben, this raises the question, when you read the book, it's a chronology of interventions. And I don't know, I'm sure you didn't start out there. I'm sure that you started out with the notion, appointed by a Republican president, that the market should take care of itself. And yet, you go in and you guarantee the commercial paper market. We raise the FDIC thing. One after another, an intervention. Do you look back on this and say, "Is there a way to get back to a better place where the market does more of its own regulation? Or is there now ingrained in the American financial system this notion of Uncle Sam to the rescue"?

BEN BERNANKE: Well, that's what we want to avoid. So first of all, I mean, part – one of the criticisms we get is, "Oh, the Fed was too slow to act and to intervene." And one of the reasons that it took us a while, you know, in 2007 to begin to get aggressive was precisely because we were concerned about this. And we didn't want to create a Bernanke put. We didn't want to, you know, tell the markets that whenever something bad happened, the Fed would rescue. So we were trying to balance those things when the panic got so bad that, obviously, it needed, you know, drastic intervention. And, of course, we threw everything we had at it. Now, after the fact, we want to do everything we can to make the markets – to get rid of the moral hazard. To reduce the too big to fail problems and to make markets self, you know, self-regulating. And some of the ways we do that, lots more capital for banks. Banks are much better capitalized than they were. They have to have not only capital, but they also have to have loss absorbing bonds. So the more that the losses – say of banks, for example, fall on their owners and creditors, the more market discipline there's going to be. So that's kind of the direction we're trying to go or they were trying to go.

ANDREW ROSS SORKIN: Talking about politics, he called you Republican. In the book, you talk about how Washington has put you off of politics and that, to a large degree, the Republican party has moved too far right for you.

BEN BERNANKE: Well, there's this, you know, there's obviously a populist wing on both sides, on both the Democratic and Republican side. But a lot of the anti-Fed, you know, let's audit the Fed type legislation, not strictly from the Tea Party, but some – a lot of it's come from there. Some of it's come from Occupy Wall Street as well. So, you know, I took a very nonpartisan perspective when I was Fed chair. I think that's what's appropriate. And I've tried to stay very much in the middle and stay away from the extremes on both sides.

JOE KERNEN: Do you think there should be some rules based decision making from here on out? More so because you do kick it around here. It's, like, you know, if the island of Cyprus has a currency problem, we're not going to raise. I mean, that's one person in charge of a lot of stuff. If they're wrong or subjectively wrong, we're all at risk.

BEN BERNANKE: Well, you want to have a government of laws, you know rather than men, as they say, as much as possible.

JOE KERNEN: Right, right. A lot of discretion the Fed chair gets, though.

BEN BERNANKE: But there are circumstances when, you know, you just need to have a dramatic response. And I would say some people don't appreciate entirely that – and this is something I try to explain in the book – that this crisis was very similar in structure and in form to crises that took place 150 years ago. And we know from there how central banks respond to those.

JOE KERNEN: You told me not to go back to the 1950s and 1960s. Now you're going back 150.


BEN BERNANKE: Alright, so I won't go to the 19thcentury. 1907 was a great one. JPMorgan intervened as a private citizen to stop a panic. That's what led to the creation of the Fed. The Fed's job is to intervene and stop panics. But you also have to have strong regulations so that panics are not, you know, common occurrences.

JOE KERNEN: I was actually talking about the current Fed chair. It seems like there's a lot of discretion on when to do what now. And I'd like a couple of rules.

BEN BERNANKE: Well, this is much, you know, there's targets. There's – when I was there, we put in the 2% inflation target. That's a very clear, quantitative guideline.

ANDREW ROSS SORKIN: Okay, we've got to slip in a quick break. Mr. Chairman, thank you. Appreciate it. We've got to talk about Paul Giamatti too. He never saw him.

STEVE LIESMAN: You never saw it?

JOE KERNEN: I haven't seen it.

ANDREW ROSS SORKIN: Good for you. I think you came to the premiere –

JOE KERNEN: No I did not.

BECKY QUICK: When we come back we will have much more from former Fed chairman Ben Bernanke. In the meantime, take a look at the futures. You're going to see that the DOW futures are up by about 120 points above fair value. S&P futures up by 14. The NASDAQ up by 30. Stick around. "Squawk Box" will be right back.



BECKY QUICK: Welcome back, everybody. We have a special guest with us on set this hour. Ben Bernanke, the former Federal Reserve chairman who is out with a new book today. It's called The Courage to Act. Mr. Chairman, we talked a little bit at the top of the hour about how you think that this is an economy that is not necessarily one that fits with the idea of raising rates. But six years in, is it an economy that still fits with zero interest rates?

BEN BERNANKE: Well, again-- so these are--we're at this point, obviously, the Fed is looking at--this. And they're tough calls. And I certainly don't wanna be second guessing. But it's not evidence to me that policy is too easy because-- again, because inflation is very low. And, you know-- we're just now approaching sort of a full employment level of output. So-- it's a tough call. But, you know, again, there-- the folks who--were arguing a few years ago that the Fed was, you know, creating this radically expansionary policy-- you know, they were predicting high inflation, we haven't seen it. So that's an indication that policy is--not radically easy anyway. And-- we'll see-- you know, and again, obviously, the-- the Fed is looking to normalize over time. And they're gonna make some tough calls about how to do that. But, you know, it's-- again, inflation is very low.

BECKY QUICK: We had one market watcher who joined us earlier this morning, Mark Grant. And he suggested that the Fed should sell down or let run some of its balance sheet-- a trillion dollars. Let that run off before they raise interest rates. What do you think about an idea like that?

BEN BERNANKE: Well—Joe had an earlier comment about how are we gonna get out of $4 trillion, that kind of thing. That-- that's actually not a big issue. You know, when the time comes, the Fed is just gonna let the balance sheet run off. And I don't think--that's pretty straightforward. I don't think that's gonna create any particular problems. But I think that the concern is that, you know, that they have less knowledge about how that would work, how that would affect the markets than they do about how short term interest rates would. And so the plan-- and the Fed has been very clear about this, is to begin by raising short term interest rates, which they can absolutely do, even if the balance sheet is still $4 trillion. And then, if the economy is still, you know, making-- forward progress, then they can stop reinvesting and the balance sheet will passively run off over time.

JOE KERNEN: What was the first goalpost for when the accommodation was end?

STEVE LIESMAN: Six and a half and two--

BEN BERNANKE: No, no, no-- that's—not a goal post

STEVE LIESMAN: hold on, hold on, hold on, let's hear it, yeah.

BEN BERNANKE: That was not-- that was not a trigger. That was not-- we never, ever said that we--

QUESTION: But the goalpost has moved?

BEN BERNANKE: No, it has not moved. Nothing-- it has not moved. The goal post is 2% inflation. We're not there yet. The-- what we s-- 6.5% was we promised as a form of forward guidance, we promised that we would not-- tighten policy at least until we got to 6.5%. We didn't say we would tighten when we got to 6.5%. And I said that many, many times. And it was very clear in the statement. And it's just wrong to say it was something else--

BECKY QUICK: Yes, I mean--

JOE KERNEN: But it's hard for-- you know, with inflationary expectations, maybe you can look at some future-- indication of it. But it's really hard--when-- inflation is being conjured up. And so you-- we had this great-- fracking revolution here, which may be one reason why inflation is so low. But isn't it-- if we're one six or one five-- and, you know, we're probably not headed back down the other way, is there anything wrong with being-- slightly preemptive, not a lagging

BEN BERNANKE: Well, that's the debate. I mean, the debate is that-- you know, given that it takes-- you know, that market policy takes time to work, those people who would like to raise rates now are saying, "Well, we don't see inflation yet, but we need to move sometime soon in order to anticipate it"

JOE KERNEN: Because that's the only thing we hear, from you, from them. It's all inflation, everything else indicates we shouldn't be at emergency measures in terms of--

BEN BERNANKE : Why do you use the term emergency measures. Zero--


BEN BERNANKE: Yeah. But-- well, zero—

JOE KERNEN: we've never been here before at 5.1%.

BEN BERNANKE: --is-- so zero is 3.5 percentage points above what the-- below, sorry, what the Fed thinks is the long run Fed policy rate, right? In-- 2003, we had a 1% rate and we ended up at 5.25%. So we were able to go 425 basis points from 1% to 5.25%. so that's 75 basis point more emergency

BECKY QUICK: Yeah but zero you can't go any lower.

BEN BERNANKE: You can't go lower than zero. And that's-- that's a reason--Actually, that's a reason to be cautious.

STEVE LIESMAN: Can I just shift gears here real quickly? Ben, how would you process China right now? There's a lotta people who say-- the Fed chair. Janet Yellen said it was essentially a reason not to move rates. Other folks say that the danger's overblown. How do you process it?

BEN BERNANKE: Well-- you know, I don't see in China-- and I'm certainly no expert on China, but what I see following the, you know, the-- information that I can, is that China's slowing down. But it was something we broadly anticipated-- to happened because it's making a transition from a heavy industry, infrastructure, construction export led economy, to a more market oriented retail services type economy. And that necessarily is gonna create a slowing pace of growth. Now, is this slowing more than that would indicate? It's hard to tell. I mean, what all we know is that the-- is the heavy industry part is slowing. And that has implications for other emerging markets. The-- question that-- I think that-- the Fed was talked about was that, you know, we knew China was slowing. But then in August we saw a very sharp market reaction to the economy news that we should've known already. And so the question arises, is there something happening that the markets are telling us that we don't know? And when in doubt--

BECKY QUICK: Which is funny 'cause the markets are saying, "Is there something the Fed knows that we don't know--"

BEN BERNANKE: Yeah-- I know. There's a little bit of a game there. But--given that-- you know, the-- Fed was, you know, trying to avoid taking action, you know, and then learning right after the meeting that, oh God, there's something happening we don't really understand. So it's just a case of waiting to learn more.

STEVE LIESMAN: But is there systemic risk here?

BEN BERNANKE: Well-- the-- IMF has talked about some risk in emerging markets. And that would-- and the-- effects would be from-- a weaker China affecting commodity prices and exports from emerging markets putting pressure on them, causing their currencies to weaken, causing pressure on their dollar borrowings which, you know, then become more expensive. So there's a bunch of mechanisms that have to be paid attention to for sure. China, hard to-- you know, we don't have a lot of information about what's going on inside. I wouldn't, for example, get particularly worried about their stock market problems. I mean, they--don't relate too much to their overall economy.

JOE KERNEN: M-- one more try. This-- this is the last one.


JOE KERNEN: Yeah. (LAUGH) If-- if--


JOE KERNEN: Can we kind of agree that the benefits of-- and all this accommodation, it's hard really to know whether we're seeing anything great happening at this point. And therefore--if we're not getting any-- anything positive from it, just the notion that there may be some unknown dislocations. Bubbles that you're-- that you admittedly said that we view the Fed can't even identify. If we're not getting anything for it and we're possibly conjuring up future problems, doesn't that mean--that it's time--

BEN BERNANKE: When you say we're not getting anything for it, what you're saying is that you think the Fed could raise rates 100 basis points, it wouldn't hurt anything. That's not obvious. I don't think everybody would agree with that--

STEVE LIESMAN: Then maybe the dollar. But I know they've quoted-- all the CEOs don't-- don't want the dollar-- is that the third mandate? We have to make sure the dollar

BEN BERNANKE: No, no. It's relevant only in so far as that-- if you kill U.S. exports - a very strong dollar, that's obviously gonna have effects on domestic-- output and employment. That's-- the reason it matters.

JOE KERNEN: It's also possible the uncertainty of when they're gonna raise that's keep companies from doing things and--

BEN BERNANKE: Do you really think that's-- really think-- you take that seriously?

JOE KERNEN: I don't know.


QUESTION: He's tryin' to think of--everything

BEN BERNANKE: If I'm a guy producing, I don't know, widgets, I'm much more interested in what's happening in the overall economy, in what's happening in the widget market. I'm not fixating on the Fed, I don't think.

JOE KERNEN: I don't think we make widgets-- anymore.


JOE KERNEN: I don't think—

STEVE LIESMAN: We make it with chips now though.


STEVE LIESMAN: Yeah, virtual widgets.

BECKY QUICK: Very quickly you've said several times that this was a tough call, what the Fed had to decide last time. What would you have decided?

BEN BERNANKE: Oh, I'm not gonna second guess it. I'm sorry, but it is a tough call. And I have every confidence that's Janet's been-- and her team are gonna do the right thing. But-- lots of issues there.

BECKY QUICK: We'll be back with more from former Fed chairman--

STEVE LIE: We're almost done.

BECKY QUICK: --Bernanke right after this.

STEVE LIESMAN: Almost done. Five minutes.


STEVE LIESMAN: Let's get back to our exclusive interview with former Fed chairman, Ben Bernanke. By the way, out with a new book today called "The Courage to Act." Ben, one of the remarkable things about this book there – it's a recounting of all the things that happened – it is a factual recounting, it's also an emotion recounting. And tell us your worst moment during this crisis.

BEN BERNANKE: Well, I think the worst moment I think won't shock you, was the Lehman weekend and the knowledge that it was going to fail and the fear and uncertainty that was associated with that. And then the next couple of days, as we, you know, had to deal with AIG and talk to Congress, very tough.

QUESTION: What does that mean though, worst moment for a Fed chair? Does it mean you worried that the economy was going to blow up?

BEN BERNANKE: Oh, I was – yes, I was very worried. I mean, my whole background as an academic was studying the Great Depression, studying financial panics, their effects on the economy. And I saw we were, you know, having the granddaddy of all financial panics about to explode on us. And I thought the consequences would be tremendous.

STEVE LIESMAN: Was there a good moment? Was there a great moment you could think of?

JOE KERNEN: Besides today.

BEN BERNANKE: Besides today.

STEVE LIESMAN: Right. The crowning –

BECKY QUICK: Handing over the reins?

BEN BERNANKE: Well, you know, I think there was generally, there was a lot of – I mean, as an economist, what better job could you have? I mean, you had all these people helping you think about what's happening. And you're providing leadership for the global economy. It was in many ways, very satisfying.

STEVE LIESMAN: Does Janet Yellen call you for advice?

BEN BERNANKE: No, she doesn't do that. I think it's a good idea for me to keep my distance from that.

ANDREW ROSS SORKIN: I want to know about a different moment, which I thought would actually have been his worst moment. When he got the job, in the book, he calls his wife to tell her. And she says, "Oh no."

BEN BERNANKE: She was always more insightful about this. When I called her to tell her, she broke into tears and they were not tears of joy. She understood that it was going to be a tough road home.

STEVE LIESMAN: Ben, thanks for joining us today.



BECKY QUICK: Thank you very much.

STEVE LIESMAN: Hopefully it won't be your last time here, but the beginning of a great relationship.

BEN BERNANKE: Thank you. Thank you.

ANDREW ROSS SORKIN: Good luck with the book. It was really terrific to read.

BEN BERNANKE: Thanks a lot.

STEVE LIESMAN: Wait, I've got to give you this right here.

JOE KERNEN: She must be happy now though because, obviously, people must thank you.

BEN BERNANKE: Oh, yes. She's much better off.

ANDREW ROSS SORKIN: Oh, here you go. A party favor.

STEVE LIESMAN: Party favor. "Squawk Box" bag.

BEN BERNANKE: Oh wow. Thank you.

JOE KERNEN: For the man who has everything.

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