Ben Bernanke: Fiscal Stimulus Alone Won't Be Enough

In a speech at the London School of Economics, Fed Chairman Ben Bernanke said that fiscal stimulus—like the huge package being considered by President-elect Barack Obama—won't be enough to resolve the economic crisis all by itself. Instead, aggressive steps to bolster the financial system are needed as well. Here's a look at what some of those steps might look like.

From Bernanke's speech:

1. Plugging more cash into banks: "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets."

2. Buying souring assets from banks: "Should the Treasury decide to supplement injections of capital by removing troubled assets from institutions' balance sheets, as was initially proposed for the U.S. financial rescue plan, several approaches might be considered.  Public purchases of troubled assets are one possibility.  Another is to provide asset guarantees, under which the government would agree to absorb, presumably in exchange for warrants or some other form of compensation, part of the prospective losses on specified portfolios of troubled assets held by banks.  Yet another approach would be to set up and capitalize so-called bad banks, which would purchase assets from financial institutions in exchange for cash and equity in the bad bank. 

3. Foreclosure mitigation: "In addition, efforts to reduce preventable foreclosures, among other benefits, could strengthen the housing market and reduce mortgage losses, thereby increasing financial stability."