Tuesday, December 01, 2009

Book Review (#16 of 2009)

In Fed We Trust: Ben Bernanke's War on the Great Panic (How the Federal Reserve Became the Fourth Branch of Government) by David Wessel.

This is probably the first complete look at the Fed and Treasury's handling of the financial crisis. I've enjoyed getting greater detail on those events which I followed with much interest (and my students are writing a wiki about). I enjoy Wessel's columns and tweets.

Economists like Scott Sumner have been critical of the Fed's lack of aggressiveness in the crisis. While Bernanke thought "outside the box" it hasn't been enough for Dr. Sumner, who I respect a great deal. Wessel's book showed that many of the Fed presidents and FOMC members feared anything unorthodox. They would never relent to an inflation target, would never think of CREATING higher inflation as a way to combat the liquidity trap. I found that really sad, but I am glad to know what the political realities of Fed life are.

My criticism of Wessel's book is that he glosses over Lehman Brothers' collapse, focusing only on how its collapse affected other things. I suppose he left it to other books and the documentaries PBS Frontline did to tell the Lehman story, but glossing over that event and focusing on all the others seems a little bit of an odd choice.

Bernanke lashed out at Fed critics over the weekend. Rightly so, politicians are critical of him and others of doing too much when previously they were concerned that too little was done (ignoring that so much meddling by politicians helped fuel the housing boom in the first place). "You get no kudos for what might have been," Hank Paulson is quoted. Bernanke comes across as a good guy and national hero to Wessel, someone who did whatever it took when given few legal options.

I give the book 3.5 stars out of 5. It's good, but I look forward to more in-depth books on the crisis in the years (decades) to come.

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