His speech today at the famous Jackson Hole conference.

This strong and unprecedented international policy response proved broadly effective. Critically, it averted the imminent collapse of the global financial system, an outcome that seemed all too possible to the finance ministers and central bankers that gathered in Washington on October 10. However, although the intensity of the crisis moderated and the risk of systemic collapse declined in the wake of the policy response, financial conditions remained highly stressed. For example, although short-term funding spreads in global markets began to turn down in October, they remained elevated into this year. And, although generalized pressures on financial institutions subsided somewhat, government actions to prevent the disorderly failures of individual, systemically significant institutions continued to be necessary.

Overall, Bernanke pats himself on the back so hard that I am sure that he broke his arm. Every decision was the most sensible. The choices on Lehman (allowed to fail) and Merrill Lynch (forced onto Bank of America) had nothing to do with Paulson and Bernanke asserting their personal power, but instead were forced by the constraints and circumstances at the time.

Bernanke emphasizes that this was a liquidity crisis, or panic.

Panics arose in multiple contexts last year. For example, many financial institutions, notably including the independent investment banks, financed a portion of their assets through short-term repo agreements. In repo agreements, the asset being financed serves as collateral for the loan, and the maximum amount of the loan is the current assessed value of the collateral less a haircut. In a crisis, haircuts typically rise as short-term lenders attempt to protect themselves from possible declines in asset prices. But this individually rational behavior can set off a run-like dynamic: As high haircuts make financing portfolios more difficult, some borrowers may have no option but to sell assets into illiquid markets. These forced sales drive down asset prices, increase volatility, and weaken the financial positions of all holders of similar assets, which in turn increases the risks borne by repo lenders and thus the haircuts they demand…In such an environment, the line between insolvency and illiquidity may be quite blurry.

…The view that the financial crisis had elements of a classic panic, particularly during its most intense phases, has helped to motivate a number of the Federal Reserve’s policy actions

There word “panic” appears 14 times during the speech. The phrase “house prices” appears just twice, and the phrase “mortgage defaults” appears just once.

Clearly, Bernanke was listening to the CEO’s of the big financial institutions who were telling him that they would have been fine if their short-term lenders had stuck by them. As far as the big bankers were concerned, this was an immaculate panic, in which their actual bad investments were not the problem. It was just that too many people lost confidence.

If this story is true, then whoever invested in banks and “toxic assets” last year should end up with a huge profit. The taxpayers should be raking in tens of billions, if not hundreds of billions, in windfall gains over the next few years, as the Fed and the Treasury cash in on the investments they made while everyone else was in panic.

We’ll see.