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Last Updated: Sunday, 9 September 2007, 08:45 GMT 09:45 UK
Bankers tackle the US credit crisis
By Stephen Evans
BBC News

Central bankers at the Jackson Hole hotel
Delegates maintained a low-key presence at the hotel

The annual meeting of central bankers in Jackson Hole, Wyoming often seems bizarre, even surreal.

The people who really can move markets meet in a wooden 1950s hotel, secluded among the pines, in the shadow - literally the shadow - of the magnificent Teton range of granite mountains, discussing "Housing, Housing Finance & Monetary Policy".

As they wander out, blinking, from the "Explorers' Room" where the seminar's being held, they are largely ignored by Middle America on Vacation.

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They seem oblivious of the men - usually men - who really do have power over their livelihoods.

At last week's meeting there were, on my count, 21 actual heads of central banks - from Ben Bernanke of the Federal Reserve to the governors or presidents of the Banks of Jordan, Poland, South Africa, Israel, Jordan, Turkey, Argentina and a host of others.


These are people who, for the most part, thrive on public silence.

US Federal Reserve chief Ben Bernanke and his wife at Jackson Hole
Mr Bernanke's media appearances were heavily orchestrated

Mr Bernanke's appearances outside the seclusion of the seminars were orchestrated to a fine degree.

He appeared clutching a mug of coffee on the terrace over-looking one of the most magnificent views on the planet, that of the Teton mountains and Snake River in the National Park.

But all around him the citizenry were un-moved, talking rather of whether that's an elk they can see in the distance.

And that, no doubt, is the way it should be.

Market turmoil

Ed Lazear
We don't want to impose regulations that would be harmful to the economy
Ed Lazear
Council of Economic Advisers

Overshadowing this year's meeting was the turmoil roiling the world's stock markets - turmoil which has been emanating from the American housing market.

Loans to people who couldn't repay them got bundled together and bought by banks right around the world, at an ultimate cost that nobody can yet calculate.

The Jackson Hole meeting is not a decision-making forum.

Academic papers are presented and then discussed. No formal conclusions are arrived at, but the general drive of feeling can be ascertained.

Most people that I spoke to there believed the turmoil can be contained and is already being doused down, though without absolute certainty that serious repercussions may yet be felt.

The main worry now is that falling house prices in the United States will dampen consumer spending.

As Mr Bernanke told the symposium: "Further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected.'"

And he indicated that the Fed might lower interest rates to prevent falling house prices rebounding across the wider economy by depressing spending.

Rescue moves

Martin Feldstein, the president of the National Bureau of Economic Research and the main economic advisor to Ronald Reagan, wants the Federal Reserve to lower interest rates: "Housing prices are beginning to fall.

"A lot experts think they're going to fall further. If that happens, household wealth declines and people respond to that by spending less. So I think the fed has to ease to bring us out of this."

Ed Lazear, who chairs President Bush's Council of Economic Advisers, told me that "mistakes that were made in terms of regulation".

But he added that governments have to be careful when they respond with new regulation: "When you make changes that are very significant, they tend to be blunt instruments and they tend to do more harm than they do good. We don't want to impose regulations that would be harmful to the economy."


According to him, the aim should be to increase transparency to ensure that borrowers know what they're signing up for.

"There are always abuses in markets. There are always mistakes in markets, but markets are better now rather than worse. People are better informed. There's more information available.

US Federal Reserve chief Ben Bernanke at Jackson Hole
Mr Bernanke hinted at a rates cut to promote 'financial stability'
"I don't think there's anything that comes out of this that questions the value of capitalism, In fact quite the reverse. The ability of economies to adjust to this in such a robust fashion is really testament to the strength of capitalism.

"If you look at the US over the past five or six years, we've had some very major shocks in terms of the dot.com bust, in terms of 9/11, in terms of corporate scandal. We had a significant recession. And yet if you look at this and you look at this economic period and we led the developed world in terms of growth rates and in terms of economic performance.

"I think it suggest that the robustness that's been built into the system by the kind of flexibility that we have in our economy is probably something that should be mimicked by other countries," said Mr Lazear.

One feeling did seem to be prevalent, and that was that regulation of the way in which mortgages were sold was inadequate.

Rakesh Mohan, Deputy Governor of the Reserve Bank of India, told me that the events in the United States had confirmed the view in India that a cautious approach was the way forward.

The general view among the bankers and economists at Jackson Hole was that the crisis could be contained by sensible measures - assuming collapsing American home prices don't make people slam their wallets shut.

Stephen Evans's two special programmes about the US sub-prime credit woes will be broadcast on Radio 4 at 2100 BST on Sunday, 9 September.

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