April 3 (Bloomberg) -- New York Federal Reserve Bank President Timothy Geithner said capital markets are still ``substantially impaired'' and policy makers and financial industry leaders must ``act forcefully'' to stem the crisis.
``What we were observing in U.S. and global financial markets was similar to the classic pattern in financial crises,'' Geithner said in his prepared testimony to the Senate Banking Committee. He cited ``a self-reinforcing downward spiral'' of asset sales, ``higher volatility, and still lower prices.''
The New York Fed chief also said that the central bank's emergency actions to rescue Bear Stearns Cos. were aimed at halting a ``classic'' financial crisis that would have caused ``protracted'' damage to the U.S. economy.
Fed officials are trying to defend the aid to Bear Stearns as an emergency move to stem deeper damage to the U.S. financial system. Lawmakers are investigating the deal, concerned that government funds may be at risk and that regulators failed to recognize the mounting crisis.
Geithner's 22-page testimony included a narrative on the events that led to the Fed's emergency loan for Bear Stearns, and the economic consequences if the central bank hadn't stepped in.
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