Bernanke Says He Failed to Spot Flaws in Financial System

By SEWELL CHAN
NYT

WASHINGTON — Ben S. Bernanke, who told Congress in 2007 that the subprime mortgage crisis was “likely to be contained,” said Thursday that he had failed to recognize vulnerabilities and weaknesses in the financial system that amplified the housing downturn and nearly collapsed the global economy.

Under pointed but polite questioning from members of the Financial Crisis Inquiry Commission, Mr. Bernanke, the chairman of the Federal Reserve, signaled that the central bank was eager to embrace the strengthened role provided by the Dodd-Frank financial regulatory law that President Obama signed in July.

He spoke favorably of forcing huge banks to hold much more capital, particularly if they were systemically important — so much capital, indeed, that being big would be costly. He declared that “for capitalism to work,” executive pay had to be tied to performance. And he criticized bankers who “drove their companies into a ditch” only to “walk off with lots of money.”

Mr. Bernanke said that when he made his remarks in 2007 he thought the subprime problems were “manageable.”

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