Today, Federal Reserve Chairman Ben Bernanke testified before Congress on current economic and financial conditions and the federal budget. Here is an excerpt:

Recent Financial and Economic Developments and the Policy Responses
Over the past 18 months, the global economy has experienced a period of extraordinary turbulence. The collapse of a global credit boom, triggered by the end of housing booms in the United States and other countries and the associated problems in mortgage markets, has led to a deterioration of asset values and credit conditions and taken a heavy toll on business and consumer confidence.

The financial crisis intensified considerably in the fall. In the United States, the government-sponsored enterprises, Fannie Mae and Freddie Mac, were placed into conservatorship, and Lehman Brothers Holdings and several other large financial institutions either failed, nearly failed, or were acquired by competitors under distressed circumstances. Losses at money market mutual funds led to large withdrawals by their investors, and those outflows undermined both the stability of short-term funding markets, particularly the commercial paper market, and confidence in wholesale bank funding markets.

In early October, the loss of investor confidence in financial institutions around the world raised the prospect of an international financial collapse, an event that would have been devastating for global economic prospects. Using authorities granted by the Emergency Economic Stabilization Act, on October 14, the Treasury announced a plan to inject $250 billion in capital into U.S. financial institutions. The Treasury’s actions were complemented by the Federal Deposit Insurance Corporation’s expansion of bank liability guarantees and by the expansive provision of liquidity by the Federal Reserve. Together with similar measures in other countries, these steps averted a collapse and restored a degree of stability to the financial system. Nevertheless, the cumulative effect of the financial stress was to precipitate a sharp downturn in economic activity around the world.

Read the Full Report.