On September 23, 2008, I sat with Federal Reserve
Chairman Ben Bernanke in a Congressional Hearing,
urging congress to enact a proposed $700bn rescue
package to stabilize the US economy.
This was a financial crisis of the first magnitude. On the one hand we needed to convince Congress that emergency legislation was needed quickly so we could intervene; on the other hand we wanted to bolster the confidence of market participants and avoid exacerbating the turmoil. We knew that the words we chose would play an enormous role in determining whether we would be successful on both fronts.
The events that led to that pivotal day last fall are well documented. By mid-September, after 13 months of market stress, the financial system had essentially seized up. Credit markets were largely frozen, denying financial institutions, businesses and consumers access to vital funds. Blue chip industrial companies could only issue commercial paper with very short maturities. Small and medium-sized companies with no direct connection to the financial sector were struggling to meet payrolls, pay suppliers and buy inventory. Our system was on the verge of collapse, a collapse that would have significantly worsened and prolonged the economic downturn already underway.
Historians will argue for generations about the appropriateness of the Administration’s policy response. Here I will focus only on the communications dilemma posed by the conflicting views of financial and political audiences and the extreme sensitivity of the language which business and political leaders choose to use in times of crisis.
My challenge throughout that difficult period was always to get the policy, the politics and the market reaction all right at the same time – an often impossible task. As we pursued legislation, we knew Congress was in a tough position. We’d asked them to act quickly, just six weeks before an election, to commit enormous sums of taxpayer money to the financial system. Legislators had little time to educate their constituents as to why urgent government action was necessary.
Members of Congress inevitably put us on the spot. Repeatedly, they asked us to spell out what would happen to unemployment and the economy if they did not act. They needed us to make strong statements about how bad it would be without action so they could justify their votes. But at the same time, financial market participants were hoping for a quite different message, one of reassurance and calm. With financial and cable networks airing the hearing live, market indices streaming across the bottom of screens and bloggers providing instant commentary, we were playing for very high stakes. The manner in which we communicated was going to affect the confidence of our financial markets and the path and speed of the legislation before Congress, both of which were vital to our goal of stabilizing the financial system. How to reconcile the two?
Before the hearing, I thought about this challenge. I knew that I would have many more meetings with lawmakers, and that this hearing would not be my only chance to make the case for legislation. I also knew that if I outlined a doomsday scenario, markets would quickly plunge and do further damage to our already reeling economy. I therefore deliberately chose not to use alarming language – judging that my highest responsibility was to provide reassurance to markets. Looking back more than a year later it is impossible to know whether a different approach would have averted the initial failure of the legislation in the House of Representatives, an event (September 29) that triggered a single-day 700 point fall in the Dow Jones Industrial Average. But we will also never know whether voicing deep concerns about the impact of the financial crisis on our economy then would have simply triggered a similar or worse drop on the day of the hearing.
While our dilemma played out amid global media attention, it is a dilemma many have faced. Leaders in government and business today routinely confront the challenge of communicating to a variety of audiences, each of which hopes to take away a different message. This is more true today than it has ever been, with government more deeply involved in our economy than before. The economy’s performance has become a top concern for the public, and elected officials are therefore giving greater attention and scrutiny to economic and business news. A corporate CEO pursuing a merger, for example, faces an investor audience wanting to hear how the merger will “rationalize” operations including through job cuts; elected officials and the broader public want to hear that no jobs will be lost. Similarly, investors in a medical device company with a new and innovative product will want to hear about its future profitability, while a political audience will be hoping to hear that the innovation will be widely available to reduce healthcare costs.