WASHINGTON -- Federal Reserve Chairman Ben Bernanke said Sunday that he had to "hold his nose" over last year's taxpayer-financed bailouts of big financial companies but argued that the action had to be taken to avoid a major meltdown of the U.S. financial system and the broader economy.
Bernanke's comments came during a town-hall style meeting in Kansas City, Mo., where he was peppered with several questions about government decisions last year to rescue so-called "too big to fail companies" like insurance giant American International Group, whose collapse would have wreaked havoc on the global economy.
A small-business owner complained to Bernanke that such actions were "hard to swallow," saying he felt like small businesses -- also struggling to survive the recession and all the financial fallout -- were being shortchanged.
"Nothing made me more frustrated, more angry, than having to intervene" when companies were "taking wild bets," Bernanke said. But not acting would have had grave consequences for the economy, he added.
"I was not going to be the Federal Reserve chairman who presided over the second Great Depression," he said. "I had to hold my nose ... I'm as disgusted as you are.... I absolutely understand your frustration."
Public television's Jim Lehrer moderated the one-hour town hall meeting. It will air this week in three installments on PBS' "The NewsHour with Jim Lehrer."
At the height of the financial crisis last fall, Bernanke recalled spending nights on the sofa in his office. It was a "perfect storm," he said, where housing, credit and financial problems converged into a major crisis the likes of which haven't been seen since the 1930s.
The financial crisis underscores the need for Congress to enact legislation that will create a government mechanism for safely unwinding big financial companies, along the lines of the process used by the Federal Deposit Insurance Corp. to handle failing banks, Bernanke said.
When asked about the Fed's diligence in protecting consumers, Bernanke acknowledged that "we were late in addressing the subprime lending problem," referring to the risky mortgages and dubious lending practices that powered the housing boom and contributed to its crash. "We have to take some heat for that."
Still, Bernanke made the case -- as he did last week on Capitol Hill -- that consumer protection oversight should stay with the Fed. An Obama administration proposal would create a new consumer protection agency overseeing mortgage, credit cards and other financial products, stripping the Fed of some of its duties.
When Lehrer said some people think the Fed is the fourth branch of the government, Bernanke responsded: "That's a tremendous exaggeration." He said the Fed's indepedendence from political interference in setting interest rates to influence economic activity is crucial. "You get much better results" for the economy when this is the case, he said. "We're very, very sensitive to this issue."
Bernanke's appearance on the program is part of an broader campaign, unusual for a Fed chairman, to reach out to ordinary Americans. In March, Bernanke granted a rare TV interview, appearing on CBS' "60 Minutes."
His efforts to explain the Fed's actions to get the economy and financial markets back on firm footing comes as the clock ticks on Bernanke's term as Fed chief. His term expires early next year, and President Obama has not said whether he will be reappointed.
The Fed chief, who took the helm on February 2006, has been on the front lines of efforts to battle the financial crisis and end the recession, the longest since World War II.
His aggressive and unconventional actions -- including supporting the bailout of AIG to the tune of more than $180 billion -- have been credited with averting a financial catastrophe last year but also have touched off anger from the public and lawmakers on Capitol Hill about helping financial companies that made reckless gambles.