ben s bernanke : reflections on a year of crisis speech by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, at the federal reserve bank of kansas city's annual economic symposium, jackson hole, wyoming, 21 august 2009. * * * by the standards of recent decades, the economic environment at the time of this symposium one year ago was quite challenging. a year after the onset of the current crisis in august 2007, financial markets remained stressed, the economy was slowing, and inflation – driven by a global commodity boom – had risen significantly. what we could not fully appreciate when we last gathered here was that the economic and policy environment was about to become vastly more difficult. in the weeks that followed, several systemically critical financial institutions would either fail or come close to failure, activity in some key financial markets would virtually cease, and the global economy would enter a deep recession. my remarks this morning will focus on the extraordinary financial and economic events of the past year, as well as on the policy responses both in the united states and abroad. one very clear lesson of the past year – no surprise, of course, to any student of economic history, but worth noting nonetheless – is that a full - blown financial crisis can exact an enormous toll in both human and economic terms. a second lesson – once again, familiar to economic historians – is that financial disruptions do not respect borders. the crisis has been global, with no major country having been immune. history is full of examples in which the policy responses to financial crises have been slow and inadequate, often resulting ultimately in greater economic damage and increased fiscal costs. in this episode, by contrast, policymakers in the united states and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation. looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again. september - october 2008 : the crisis intensifies when we met last year, financial markets and the economy were continuing to suffer the effects of the ongoing crisis. we know now that the national bureau of economic research has determined december 2007 as the beginning of the recession. the u. s. unemployment rate had risen to 5 - 3 / 4 percent by july, about 1 percentage point above its level at the beginning of the crisis, and household spending was weakening. ongoing declines in residential construction

into dexia, a bank with assets of more than $ 700 billion, and the irish government guaranteed the deposits and most other liabilities of six large irish financial institutions. soon thereafter, the icelandic government, lacking the resources to rescue the three largest banks in that country, put them into receivership and requested assistance from the international monetary fund ( imf ) and from other nordic governments. in mid - october, the swiss authorities announced a rescue package for ubs, one of the world's largest banks, that consisted of a capital injection and a purchase of assets. 1 the growing pressures were not limited to banks with significant exposure to u. s. or u. k real estate or to securitized assets. for example, unsubstantiated rumors circulated in late september that some large swedish banks were having trouble rolling over wholesale deposits, and on october 13 the swedish government announced measures to guarantee bank debt and to inject capital into banks. 2 the rapidly worsening crisis soon spread beyond financial institutions into the money and capital markets more generally. as a result of losses on lehman's commercial paper, a prominent money market mutual fund announced on september 16 that it had " broken the buck " – that is, its net asset value had fallen below $ 1 per share. over the subsequent several weeks, investors withdrew more than $ 400 billion from so - called prime money funds. 3 conditions in short - term funding markets, including the interbank market and the commercial paper market, deteriorated sharply. equity prices fell precipitously, and credit risk spreads jumped. the crisis also began to affect countries that had thus far escaped its worst effects. notably, financial markets in emerging market economies were whipsawed as a flight from risk led capital inflows to those countries to swing abruptly to outflows. the policy response authorities in the united states and around the globe moved quickly to respond to this new phase of the crisis, although the details differed according to the character of financial systems. the financial system of the united states gives a much greater role to financial markets and to nonbank financial institutions than is the case in most other nations, which rely primarily on banks. 4 thus, in the united states, a wider variety of policy measures was needed than in some other nations. in the united states, the federal reserve established new liquidity facilities with the goal of restoring basic functioning in various critical markets. notably, on september 19, the fed announced the creation of a facility aimed at