Bernanke Tells New Yorker He Underestimated Housing Meltdown

By Daniel Whitten

Nov. 23 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said he underestimated the impact subprime mortgages would have on the economy, according to an interview to appear in the New Yorker magazine’s Dec. 1 edition.

“I and others were mistaken early on in saying that the subprime crisis would be contained,” Bernanke said. “The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.”

Widespread failures of U.S. subprime mortgages, home loans to borrowers with poor credit records, started in 2007, touching off a financial crisis that has spread to other sectors of the world economy.

The article, entitled “Anatomy of a Meltdown,” said Bernanke and Treasury Secretary Henry Paulson tried what Bernanke and his Fed colleagues called a “finger-in-the-dike” strategy to keep the financial sector operating long enough so that it could repair itself. As recently as this Sept. 1, the article said, Bernanke thought that strategy would work.

To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net.