It is only fitting that I am writing this book review on a Sunday. In Fed We Trust: Ben Bernanke’s War on the Great Panic starts off by telling about the importance of a few Sundays in 2008. In March, there was the Sunday when the Federal Reserve announced an unprecedented action to lend $30 billion to JPMorgan Chase to buy Bear Stearns. There was the Sunday in August when the Federal Reserve and the Treasury Department decided to seize Fannie Mae and Freddie Mac. Of course, there was the Sunday in September when they allowed Lehman Brothers to fail. There was the Sunday when Bank of America agreed to take over Merrill Lynch.
David Wessel tells a story about Ben Bernanke’s rule of the Federal Reserve deciding to do “whatever it takes” to protect the U.S. economy from the incredible economic threat of those Sundays. The story takes us through what it missed, what it did, what it didn’t do, what it got right and what it got wrong during the “Great Panic.”
During Alan Greenspan’s term as chairman of the Federal Reserve we mostly watched as he and the Board decided whether to raise interest rates or not. Most of the country thought that was the extent of what the Federal Reserve did. During Bernanke’s term we saw the incredible power of the Federal Reserve to create vast sums of money out of thin air.
One of the key takeaways from the book is that is very difficult “to get the politics, the policy and market reaction all right at the any one point in time.” That was a quote from former Secretary of the Treasury Henry Paulson shortly after leaving office.
The book is sometimes short on its depiction of events. The one that stuck out the most was the short description of the Merrill Lynch discussion by Bank of America’s Ken Lewis and Joe Price. The New York Attorney General tells a more interesting tale in his indictment of the Bank of America executives.
But of the book provides terrific insight into the events of the Great Panic. (That’s the term the Wessel uses.) During the full-court press of forcing the largest banks to take TARP money, it’s Merrill Lunch’s Thain that asks how taking the TARP money would affect government controls on executive compensation. As we later find out, Thain became one of the poster boys for the banks’ failures with executive compensation.
In the end, as we all know, mistakes were made. The Federal Reserve did not always get the politics, policy and market reaction right.
But what if Bernanke had not been a student of the Great Depression? What if he had not taken bold steps? I think the economy and the country would be much worse off.