), auction rate securities ( ars ), interbank funding products, and repurchase agreements ( rps ), were intended to be steady, supportive credit facilitators in a liquidity - rich environment. in reality, these products involved a good deal of maturity mismatching and rollover risk. so, when liquidity retrenched, these markets experienced substantial disruptions. abcp outstanding fell by a staggering $ 300 billion this past summer. issuance of ars – long - term bonds that reissue and reprice at very short intervals – came to an abrupt halt. and, the interbank funding and rp markets showed significant signs of strain. credit quality concerns alone do not appear, even now, sufficiently widespread to induce the depth of problems witnessed in financial markets during the past several months. some ars that failed, for example, funded pools of federally guaranteed student loans. i do not mean to suggest that counterparties themselves are blameless – many had been less than fully transparent. unclear disclosure by some financial institutions with respect to their offbalance - sheet commitments and liquidity support accentuated the uncertainty that is responsible for some of the poor market functioning. more fundamentally, in my view, funding market disruptions reflect a striking decline in confidence in the financial architecture itself. perhaps an analogue to banking systems without deposit insurance is appropriate : depositors withdraw funds if they believe others will act similarly. in short - term credit markets with minimal liquidity support, investors balk if they lose confidence in other investors'willingness to roll maturing paper. even when liquidity support exists, it may well prove insufficient to address market - wide concerns. many dealers of ars, for example, withdrew their implicit liquidity support when failures became more frequent. even those abcp programs purportedly with full explicit liquidity support were implicated in the turmoil. i hesitate to ascribe this loss in confidence simply to a change in animal spirits or to dismiss this occurrence as some kind of contagion. after all, a loss in confidence can be completely rational : illiquidity forces issuers to sell assets into distressed markets. so, i argue, the functioning of short - term credit markets is invariably tied to changes in confidence of our financial architecture – on the way up and on the way down. the arc of this narrative, thus, necessarily began some years ago. increasingly abundant confidence when things were advancing apace – unsustainably so, it turns out – gave rise to levels of

ben s bernanke : teaching and learning about the federal reserve remarks by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, at a teacher town hall meeting “ 100 years of the federal reserve ”, washington dc, 13 november 2013. * * * thank you for that introduction. tonight marks the third time in just a little over three years that the federal reserve system has hosted a teacher town hall, and i am very pleased to have this opportunity to speak with educators, both those of you here in washington, d. c., and those watching at reserve bank gatherings around the country. i look forward to your questions in a few moments. but let me begin by briefly discussing an important milestone for the federal reserve – its centennial – and the opportunity that this occasion affords to teach and learn about the fed ’ s origins, history, and role, and about how this institution has helped shape the nation ’ s economy and financial system. president woodrow wilson signed the federal reserve act, which established the federal reserve system, on december 23, 1913. as the 100th anniversary of that event approaches, we have several reasons to look back at an eventful century. one important reason is to better understand what historical experience can teach us about how best to respond to current challenges. for example, as many of you know, the bold measures the fed took in response to the recent financial crisis reflected in part its determination to avoid repeating the sorts of mistakes it made before and during the great depression of the 1930s. similarly, our commitment to safeguarding price stability is reinforced by memories of the costs of high inflation during the 1970s and the federal reserve ’ s subsequent restoration of price stability under chairman volcker during the 1980s. beyond the insights that the study of the federal reserve ’ s first 100 years offer to economists, historians, and policymakers about how the fed can best meet its objectives today and in the future, a second reason to mark the centennial is the opportunity it affords to educate young people about the federal reserve and its important role in promoting a healthy economy and stable financial system. when i was an educator, i quickly came to understand that students are most motivated to learn when they can see the connection of the lesson to their own lives. the fed and its activities, and economics in general, can seem remote from daily concerns. but as teachers, you can show students how the federal reserve ’ s decisions concretely affect them and their families. the fed