“While perhaps manageable in itself, Lehman’s default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets,” he told the Joint Economic Committee.
“These conditions caused equity prices to fall sharply, the cost of short-term credit - where available - to spike upward, and liquidity to dry up in many markets. Losses at a large money-market mutual fund sparked extensive withdrawals from a number of such funds. A marked increase in the demand for safe assets - a flight to quality - sent the yield on Treasury bills down to a few hundredths of a percent,” Mr. Bernanke testified.
Despite the case Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. have made for a congressional rescue of the bank and credit markets, most Americans don’t seem to be buying it and don’t understand how the disarray eventually could affect the man on the street.
A poll released Friday by the Associated Press found that only 30 percent of Americans support the bailout, and 45 percent are opposed.
Calls to congressional offices are “running 50 percent ‘no’ and 50 percent ‘hell, no,’” Rep. Paul Kanjorski, Pennsylvania Democrat, told CNBC Friday. “Out of 100 calls, you are lucky if one of them is positive.”