Ben Bernanke's In The Great Recession

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The recent financial crisis is attributed in many ways to financial innovations in the mortgage market that made it easier for people with high risk of default to access credit. Although these financial innovations gave millions of Americans an opportunity to purchase a home, their overall social benefit is questionable (Johnson, Kwak 2012). In his address at the Federal Reserve Bank in Atlanta in March 2007 Ben Bernanke pointed out, that despite "the challenges and the risks that financial innovation may create, we should also always keep in view the enormous economic benefits that flow from a healthy and innovative financial sector" (Bernanke 2007). The goal of financial innovations is to make financial intermediation easier, moving capital to where it is needed most. Bernanke continued to state that financial innovations promoted economic growth, and made the economy more resilient to busts. However, In the aftermath of the Great Recession it is clear that the risk of financial innovation can lead to a devastating cost to society. Johnson and kwak (2012) argue that "we cannot say that innovation is “good” simply because there is a market for it. The fact that there was a market for new houses does not change the fact that building those houses has turned out to be a destructive use of capital."

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