During much of the panic, he writes: “The Fed alone, with its chewing gum and baling wire, bore the burden of battling the crisis.”
Bernanke paints himself as a retiring, self-confessed geek from small-town South Carolina obsessed with baseball stats and economic history, who unexpectedly found himself at the helm of the Fed on the cusp of the worst postwar meltdown. His academic expertise on the Great Depression was among the skills that equipped him for the task — and, for him, it is too simplistic to explain the 2007-09 meltdown as the direct result of a housing boom the Fed allowed to spin out of control. Instead, he argues the main ingredient was a panicky loss of confidence in the financial sector and broader economy. The resulting financial crisis, he believed, was “the worst in human history”.
The narrative goes some way towards acknowledging his and the Fed’s own culpability in the run-up to the crisis, arguing that the authorities underestimated the risks brewing in the housing market and “failed to imagine” how diverse threats could coalesce in an almighty financial collapse. But Bernanke carefully distances himself from Alan Greenspan, insisting that unlike his predecessor he had long believed tough regulation was vital to prevent hazardous booms and busts.
The unanswered question today is why, after trillions of dollars of stimulus from Bernanke and his colleagues, the US is still struggling with only a pedestrian recovery. Part of the answer undoubtedly lies on Capitol Hill, which fecklessly reined in fiscal stimulus too abruptly amid the crisis.
Indeed, the underlying message from Bernanke’s book is that, without greater co-operation from a wiser set of legislators, the Fed was always going to be hamstrung. Too often, he recalls, the system promoted “showboating, blind ideology and malice”, with nothing useful possible until “all the wrong approaches were tried first”.
Watching the backbiting under way in Congress today, as it scurries towards yet another budgetary crisis, it is hard to disagree.
Interesting read from the FT by Sam Fleming.