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Firefighting: The Financial Crisis and Its Lessons
"Should be required reading for all policy makers.” —Warren BuffettFrom the three primary architects of the American policy response to the worst economic catastrophe since the Great Depression, a magnificent big-picture synthesis--from why it happened to where we are now.In 2018, Ben Bernanke, Tim Geithner, and Hank Paulson came together to reflect on the lessons of the 2008 financial crisis ten years on. Recognizing that, as Ben put it, "the enemy is forgetting," they examine the causes of the crisis, why it was so damaging, and what it ultimately took to prevent a second Great Depression. And they provide to their successors in the United States and the finance ministers and central bank governors of other countries a valuable playbook for reducing the damage from future financial crises. Firefighting provides a candid and powerful account of the choices they and their teams made during the crisis, working under two presidents and with the leaders of Congress.
240 pages, Kindle Edition
First published January 1, 2019
250 people are currently reading
2029 people want to read
About the author
Ben S. Bernanke
114 books203 followersBen S. Bernanke served as chairman of the Federal Reserve from 2006 to 2014. He was named Time magazine’s Person of the Year in 2009 and was a professor of economics at Princeton University prior to his career in public service.
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December 19, 2019
When I saw this book co-authored by the three individuals who were at the center of the action — Ben Bernanke, Tim Geithner, and Hank Paulson — I decided perhaps this can be the final book for me on the subject. Firefighting provides a candid explanation of the choices they made and the various private and public entities they worked with during the crisis. They defend their actions as necessary within the context of the time even though it resulted in the unpopular result of bailing out some financial institutions that many critics believe should have been allowed to fail.
The beginning of the financial crisis is generally thought of as occurring in 2008, but according to this book most bankers were aware of a subprime mortgage crisis beginning in 2007 when problems at Countrywide Financial Corporation became public. The volume of subprime mortgages was around seven percent which at first seemed to be a small enough proportion that it shouldn't bring down the whole economy. However, this debt was so well collateralized and hidden within multiple layers of derivatives that nobody knew how exposed they or their banking compatriots were to this bad debt. This uncertainty created fear of exposure that exceeded what it would have been had its location been more certain. Therefore, already in 2007 bankers were becoming increasingly cautious and conservative while the general public was still unaware of the banker’s fears.
Of course things kept getting worse. In March 2008 Bear Stearns went down, but damage from that was limited by it being absorbed into JPMorgan. The panic continued to spread and in September 2008 Lehman Brothers could not be saved which seriously shocked the financial world. Suddenly it was apparent that AIG, Fannie Mae, and Freddie Mac were in serious trouble, and if they went down many smaller institutions and private institutions would suffer.
Much of their corrective action required the cooperation of Congress, and a presidential election was underway which had the potential of making things more difficult. Fortunately, bipartisanship was still possible back in those days, and neither Obama or McCain made a campaign issue of it.
It can be argued that had the proper measures not been taken at this time that the resulting financial disaster could have been worse that the 1930s Depression. The increased urbanization of the population today is more reliant on a functioning monetary system than was the case in 1930. Some of the financial indicators dropped at a faster rate in 2008 than in 1930. If those rates continued unchecked over many years as happened in the 30s it's hard to imagine the extent of the resulting financial disaster.
The following is a link to an excerpt from the book, "A Brief History of Doom," by Richard Vague that compares the 1930s depression to the 1980 recession in terms of real estate investments:
https://delanceyplace.com/view-archiv...
The beginning of the financial crisis is generally thought of as occurring in 2008, but according to this book most bankers were aware of a subprime mortgage crisis beginning in 2007 when problems at Countrywide Financial Corporation became public. The volume of subprime mortgages was around seven percent which at first seemed to be a small enough proportion that it shouldn't bring down the whole economy. However, this debt was so well collateralized and hidden within multiple layers of derivatives that nobody knew how exposed they or their banking compatriots were to this bad debt. This uncertainty created fear of exposure that exceeded what it would have been had its location been more certain. Therefore, already in 2007 bankers were becoming increasingly cautious and conservative while the general public was still unaware of the banker’s fears.
Of course things kept getting worse. In March 2008 Bear Stearns went down, but damage from that was limited by it being absorbed into JPMorgan. The panic continued to spread and in September 2008 Lehman Brothers could not be saved which seriously shocked the financial world. Suddenly it was apparent that AIG, Fannie Mae, and Freddie Mac were in serious trouble, and if they went down many smaller institutions and private institutions would suffer.
Much of their corrective action required the cooperation of Congress, and a presidential election was underway which had the potential of making things more difficult. Fortunately, bipartisanship was still possible back in those days, and neither Obama or McCain made a campaign issue of it.
It can be argued that had the proper measures not been taken at this time that the resulting financial disaster could have been worse that the 1930s Depression. The increased urbanization of the population today is more reliant on a functioning monetary system than was the case in 1930. Some of the financial indicators dropped at a faster rate in 2008 than in 1930. If those rates continued unchecked over many years as happened in the 30s it's hard to imagine the extent of the resulting financial disaster.
The following is a link to an excerpt from the book, "A Brief History of Doom," by Richard Vague that compares the 1930s depression to the 1980 recession in terms of real estate investments:
https://delanceyplace.com/view-archiv...
May 26, 2019
In what is a stunning turn of events, the three Firefighters from the crisis of 2008 have published a mea culpa where they succinctly connect their unfortunate actions to the triumph of populism and the election of Donald Trump a short eight years later.
Firefighters aside, nobody escapes criticism here, from (i) FDR, who redlined black America out of the New Deal, to (ii) Clinton, who completely deregulated derivatives and slashed the capital gains tax to 20% (indeed, setting it to zero for one’s primary residence), to (iii) the deductibility of interest expense from some of the planet’s highest corporate income taxes, rendering the unleveraged CEO suicidal or (iv) the Greenspan Fed’s permanent policy of standing behind the value of assets in one way or another, all together conspiring with some sixty years of post-war prosperity to concentrate immense wealth in the hands of a narrow minority of white, hyper-leveraged, urban baby boomers.
It all came to a head in 2008, when it became clear that this minority (i) outright and (ii) via its pension plans and mutual fund holdings had successfully contracted to own the rights to all existing assets, to say nothing of the rights to the future sweat of all other Americans and at least a couple yet-unborn generations, naturally also packaged into tradable assets.
Not only that, via trading with one another, these boomers had “marked” these holdings at prices that the rest of the world, to say nothing of the unborn, could no longer afford to pay from its daily earnings. The only vulnerability to the system was that it was held together by leverage and the leverage was a monster that needed to be fed by increasingly higher valuations in these contracts.
“The fundamental instability of capitalism is upward,” the firefighters note wistfully, but matters conspired in 2008 to momentarily halt this ascent. And when this monster is not going up, it goes down. So down it went.
Fatefully, the firefighters admit, rather than do the right thing and wipe out the bankrupt owners, inviting the rest of America and the world back into participation in the capitalist economy, the easier choice was made:
In a stunning array of four-letter programs, trillions and trillions of government money was injected back into the system (with particular care taken to get the government out of the scam before it explodes again) and all property was placed even further beyond the reach of the average American, making the owners whole and fast-forwarding the country to its first proper existential crisis since the Civil War.
The book comes out just as we’re about to crash again, and the authors warn that (in a replay of the 1921 – 1929 episode) this time round there’s probably nothing we can do to save the white, urban baby boomers, because, well, because they will all die very soon from natural causes.
------ > WELL, NOT QUITE
(for the avoidance of doubt, the above is my attempt at parody)
In reality, what we have here is the “official” blow-by-blow account of the heroic, selfless fight the three Firefighters waged with one hand tied behind their back as they fought to prevent a re-run of the Great Depression. It all ends well. Not only was the worst outcome prevented, but the US has done better than any other major economy since 2008, with the economy enjoying its longest recovery ever and unemployment hitting some unprecedented lows.
What’s not to like?
Quite a bit, it turns out.
Let’s start with Paulson. Paulson is deeply unhappy that the “canonical” book about the 2008 crisis, that written by Blinder, blames the crash on what is perceived to be Paulson’s decision to allow Lehman to fail.
The book makes it clear that Lehman was a symptom of a crisis that had been going for a while, not a cause. Somebody was bound to go down, because the Firefighters did not have the authority to intervene. Somebody big. If it was not Lehman then it would be somebody else. There was going to be a big failure. And only after the big failure could the Firefighters get the authority to go ask for the necessary tools to deal with the crisis.
So that’s Paulson sorted, he was a good guy after all.
The blight on selfless public servant Tim Geithner has always been that he was the man who made the choice to protect the banks rather than the homeowners. Not one, but several books have come out by eyewitnesses who were there in the meetings when he talked about “foaming the runway” for the endangered banks with sundry programs to slow down the defaults. My favorite is probably by SIGTARP Neil Barofsky.
That is a total misunderstanding, it turns out. The Firefighters explain that herculean efforts were made to protect homeowners. We are made to wait until page 103 out of 136, but there comes QE and brings those mortgage rates right down. Oh, and make no mistake, Timmy talks about “foaming the runway” in multiple contexts, it’s just something he likes to say a lot. For example on page 48 you can witness “foaming the runway” in the form of injecting liquidity into the markets after Bear Sterns goes down. It comes up more. It’s just something he says a lot.
So that’s Geithner sorted, he was a good guy after all.
And that leaves us with Bernanke. We all know what he stands accused of. Yes, fine, he got rather inventive during the crisis, he did some krazy stuff even FDR would not dare do in his most improvisational breakfast-in-bed times, but that saved the day.
What people want to know is why he kept rates down for so long after the crisis. Even his biggest fans do acknowledge that a bad part of his legacy is that some very well-connected people took advantage of the permanently low rates the homeowners were meant to benefit from and made for themselves some fortunes like we have not seen since the twenties.
Whisper it, folks, QE bred inequality.
Ah, no it didn’t! Inequality, the Firefighters will have you know, had been increasing for at least a decade prior to the crisis. This was masked by the fact that there was growth. But don’t go thinking it was caused by the response to the crisis. It had been long in the making. Charts are in the back that prove this, in case the relevant prose is not good enough for you.
So there you have it. Something for everyone. In the words of Winston Churchill, “I know history will be kind to me, because I intend to write it.”
But what we have here is something much more grand than that.
It’s much more akin to Chairman Mao’s Little Red book.
Or perhaps Colonel Ghadaffi’s Little Green Book.
I propose we call it “the Little Brown Book.”
A five-star effort!
Firefighters aside, nobody escapes criticism here, from (i) FDR, who redlined black America out of the New Deal, to (ii) Clinton, who completely deregulated derivatives and slashed the capital gains tax to 20% (indeed, setting it to zero for one’s primary residence), to (iii) the deductibility of interest expense from some of the planet’s highest corporate income taxes, rendering the unleveraged CEO suicidal or (iv) the Greenspan Fed’s permanent policy of standing behind the value of assets in one way or another, all together conspiring with some sixty years of post-war prosperity to concentrate immense wealth in the hands of a narrow minority of white, hyper-leveraged, urban baby boomers.
It all came to a head in 2008, when it became clear that this minority (i) outright and (ii) via its pension plans and mutual fund holdings had successfully contracted to own the rights to all existing assets, to say nothing of the rights to the future sweat of all other Americans and at least a couple yet-unborn generations, naturally also packaged into tradable assets.
Not only that, via trading with one another, these boomers had “marked” these holdings at prices that the rest of the world, to say nothing of the unborn, could no longer afford to pay from its daily earnings. The only vulnerability to the system was that it was held together by leverage and the leverage was a monster that needed to be fed by increasingly higher valuations in these contracts.
“The fundamental instability of capitalism is upward,” the firefighters note wistfully, but matters conspired in 2008 to momentarily halt this ascent. And when this monster is not going up, it goes down. So down it went.
Fatefully, the firefighters admit, rather than do the right thing and wipe out the bankrupt owners, inviting the rest of America and the world back into participation in the capitalist economy, the easier choice was made:
In a stunning array of four-letter programs, trillions and trillions of government money was injected back into the system (with particular care taken to get the government out of the scam before it explodes again) and all property was placed even further beyond the reach of the average American, making the owners whole and fast-forwarding the country to its first proper existential crisis since the Civil War.
The book comes out just as we’re about to crash again, and the authors warn that (in a replay of the 1921 – 1929 episode) this time round there’s probably nothing we can do to save the white, urban baby boomers, because, well, because they will all die very soon from natural causes.
------ > WELL, NOT QUITE
(for the avoidance of doubt, the above is my attempt at parody)
In reality, what we have here is the “official” blow-by-blow account of the heroic, selfless fight the three Firefighters waged with one hand tied behind their back as they fought to prevent a re-run of the Great Depression. It all ends well. Not only was the worst outcome prevented, but the US has done better than any other major economy since 2008, with the economy enjoying its longest recovery ever and unemployment hitting some unprecedented lows.
What’s not to like?
Quite a bit, it turns out.
Let’s start with Paulson. Paulson is deeply unhappy that the “canonical” book about the 2008 crisis, that written by Blinder, blames the crash on what is perceived to be Paulson’s decision to allow Lehman to fail.
The book makes it clear that Lehman was a symptom of a crisis that had been going for a while, not a cause. Somebody was bound to go down, because the Firefighters did not have the authority to intervene. Somebody big. If it was not Lehman then it would be somebody else. There was going to be a big failure. And only after the big failure could the Firefighters get the authority to go ask for the necessary tools to deal with the crisis.
So that’s Paulson sorted, he was a good guy after all.
The blight on selfless public servant Tim Geithner has always been that he was the man who made the choice to protect the banks rather than the homeowners. Not one, but several books have come out by eyewitnesses who were there in the meetings when he talked about “foaming the runway” for the endangered banks with sundry programs to slow down the defaults. My favorite is probably by SIGTARP Neil Barofsky.
That is a total misunderstanding, it turns out. The Firefighters explain that herculean efforts were made to protect homeowners. We are made to wait until page 103 out of 136, but there comes QE and brings those mortgage rates right down. Oh, and make no mistake, Timmy talks about “foaming the runway” in multiple contexts, it’s just something he likes to say a lot. For example on page 48 you can witness “foaming the runway” in the form of injecting liquidity into the markets after Bear Sterns goes down. It comes up more. It’s just something he says a lot.
So that’s Geithner sorted, he was a good guy after all.
And that leaves us with Bernanke. We all know what he stands accused of. Yes, fine, he got rather inventive during the crisis, he did some krazy stuff even FDR would not dare do in his most improvisational breakfast-in-bed times, but that saved the day.
What people want to know is why he kept rates down for so long after the crisis. Even his biggest fans do acknowledge that a bad part of his legacy is that some very well-connected people took advantage of the permanently low rates the homeowners were meant to benefit from and made for themselves some fortunes like we have not seen since the twenties.
Whisper it, folks, QE bred inequality.
Ah, no it didn’t! Inequality, the Firefighters will have you know, had been increasing for at least a decade prior to the crisis. This was masked by the fact that there was growth. But don’t go thinking it was caused by the response to the crisis. It had been long in the making. Charts are in the back that prove this, in case the relevant prose is not good enough for you.
So there you have it. Something for everyone. In the words of Winston Churchill, “I know history will be kind to me, because I intend to write it.”
But what we have here is something much more grand than that.
It’s much more akin to Chairman Mao’s Little Red book.
Or perhaps Colonel Ghadaffi’s Little Green Book.
I propose we call it “the Little Brown Book.”
A five-star effort!
April 22, 2021
It was the year 2008. I was happily settled in an MNC NBFC, having been promoted recently and destined for more growth. Just as I was thinking that things could only get better from here, the scales tilted and everything went on a downward spiral. Within a span of 6 months, I was left searching for jobs - twice. What was looking like one of the most memorable periods of my life for all reasons good, turned out to be an unforgettably forgettable period. Reason? The conflagration that was threatening to burn down the Wild West of American economy – the Wall Street.
While wild fires are normally limited to the geographies where they started, this financial inferno was spreading far and wide, threatening to bring down the global economy, thanks to its interconnected nature and growing ambitions. Though I had an inkling of what caused the Financial Crisis of 2008, resulting in the not-so-memorable changes in my life, I was curious to learn more about it. The aptly titled ‘Firefighting’ is the first of the shortlisted books and it turned out to be a worthy prelude.
Subprime Mortgages – these two words caused all that chaos. To tell you the background in simple terms, just like me the world was highly optimistic in the years leading to 2008. Investors were willing to bet on high-risk investments that promised high returns. Banks and financial institutions were flooding the market with liquidity. People were starting to chase the dream of owning a house. As a result, there was a boom in real estate in the US and elsewhere, with real-estate prices increasing every day. Financial institutions that were lending to fuel this boom wanted to raise more funds to lend more. One of their ideas was to repackage these loans into mortgage-backed securities (MBS) and sell if off to return-craving investors, on promises of regular returns.
With the demand for MBS growing more and more, the financial institutions started giving home loans to even uncreditworthy people – people with no solid income, no credit history and no assets to guarantee the repayment. On one end, investors were pouring in money, driven by greed, and on the other, banks were throwing it all away by lending it to all and sundry, based on overconfidence bordering on arrogance. It was all based on the assumption that the real-estate demand will keep up and the prices will go on increasing.
Then came the slump in demand for housing and suddenly there were more houses than takers. Also, the subprime mortgages were starting to go sour. With defaults piling up and the investors starting to pull out their investments fearing losses, the financial institutions that were indulging in this perilous business were starting to fall like dominoes. Their collapse resulted in serious recession and unpleasant fallouts elsewhere too – in the form of job losses, negative spends, resultant decrease in demand and in turn, more job losses – including that of people like me.
This book is written by the people who were in the forefront fighting that financial hellfire – Ben S. Bernanke, Chairman of the Federal Reserve, Timothy F. Geithner, Treasury Secretary (Obama) and Henry M. Paulson, Jr., Treasury Secretary (Bush). Advantages of reading a book written by people who fought the fire is that you expect to get a front-row view of the crisis as it unfolded. The book lives up to that expectation. With their experience and wisdom, they have well explained the causes of the crisis, events during the crisis, the casualties and the cure administered. Comprehensive and unbiased, they have pointed out the pros and cons of the corrective measures taken by both administrations – by George W. Bush and his successor, Barack Obama. Having written the book by 2019, they have also shared their thoughts on how America is well and ill-equipped to handle a similar crisis at present, especially as it stood polarized under an uncouth president like Donald Trump.
One of the negatives is that they have written the book in a diplomatic manner and from too high a view to recount the pains of people at the bottom of the financial pyramid. Neither is there a recounting of greedy arrogance of the CEOs that dragged American economy to its nadir (but who received safe exits – ‘golden parachutes’ – sans compunction). Nor is the resulting global financial pandemonium spoken about in detail. But considering the authors’ positions and the fact that this book is mainly about the financial crisis in America, we understand that those topics are simply out of the scope of this book.
Clear and comprehensive, this will be one of my favorite books on the financial crisis 2008!
While wild fires are normally limited to the geographies where they started, this financial inferno was spreading far and wide, threatening to bring down the global economy, thanks to its interconnected nature and growing ambitions. Though I had an inkling of what caused the Financial Crisis of 2008, resulting in the not-so-memorable changes in my life, I was curious to learn more about it. The aptly titled ‘Firefighting’ is the first of the shortlisted books and it turned out to be a worthy prelude.
Subprime Mortgages – these two words caused all that chaos. To tell you the background in simple terms, just like me the world was highly optimistic in the years leading to 2008. Investors were willing to bet on high-risk investments that promised high returns. Banks and financial institutions were flooding the market with liquidity. People were starting to chase the dream of owning a house. As a result, there was a boom in real estate in the US and elsewhere, with real-estate prices increasing every day. Financial institutions that were lending to fuel this boom wanted to raise more funds to lend more. One of their ideas was to repackage these loans into mortgage-backed securities (MBS) and sell if off to return-craving investors, on promises of regular returns.
With the demand for MBS growing more and more, the financial institutions started giving home loans to even uncreditworthy people – people with no solid income, no credit history and no assets to guarantee the repayment. On one end, investors were pouring in money, driven by greed, and on the other, banks were throwing it all away by lending it to all and sundry, based on overconfidence bordering on arrogance. It was all based on the assumption that the real-estate demand will keep up and the prices will go on increasing.
Then came the slump in demand for housing and suddenly there were more houses than takers. Also, the subprime mortgages were starting to go sour. With defaults piling up and the investors starting to pull out their investments fearing losses, the financial institutions that were indulging in this perilous business were starting to fall like dominoes. Their collapse resulted in serious recession and unpleasant fallouts elsewhere too – in the form of job losses, negative spends, resultant decrease in demand and in turn, more job losses – including that of people like me.
This book is written by the people who were in the forefront fighting that financial hellfire – Ben S. Bernanke, Chairman of the Federal Reserve, Timothy F. Geithner, Treasury Secretary (Obama) and Henry M. Paulson, Jr., Treasury Secretary (Bush). Advantages of reading a book written by people who fought the fire is that you expect to get a front-row view of the crisis as it unfolded. The book lives up to that expectation. With their experience and wisdom, they have well explained the causes of the crisis, events during the crisis, the casualties and the cure administered. Comprehensive and unbiased, they have pointed out the pros and cons of the corrective measures taken by both administrations – by George W. Bush and his successor, Barack Obama. Having written the book by 2019, they have also shared their thoughts on how America is well and ill-equipped to handle a similar crisis at present, especially as it stood polarized under an uncouth president like Donald Trump.
One of the negatives is that they have written the book in a diplomatic manner and from too high a view to recount the pains of people at the bottom of the financial pyramid. Neither is there a recounting of greedy arrogance of the CEOs that dragged American economy to its nadir (but who received safe exits – ‘golden parachutes’ – sans compunction). Nor is the resulting global financial pandemonium spoken about in detail. But considering the authors’ positions and the fact that this book is mainly about the financial crisis in America, we understand that those topics are simply out of the scope of this book.
Clear and comprehensive, this will be one of my favorite books on the financial crisis 2008!
August 25, 2019
Firefighting: The Financial Crisis and Its Lessons by Ben S. Bernanke, Timothy Geithner, and Henry M. Paulson Jr., is an interesting account of the 2008 financial crisis 10 years on. Many analysis of the financial crisis have been written over the years, almost to the point of abundance. Much like books on Trump, populism, nationalism and so on being released in today's political climate, the financial crisis was the topic of the era. This one, however, was written by three of the main players in the 2008 recession - Ben Bernanke, Chair of the Federal Reserve, Timothy Geithner, head of the Treasury, and Henry Paulson Jr. as Secretary Treasurer under George W. Bush. It is a blow by blow account of the crisis, as well as a fantastic analysis of what went wrong, what could be better, and what needs to be done in the future to ensure the United States can combat further financial disasters.
This book starts with a blow by blow account of the beginning of the crisis, chronicling the inflationary growth of real estate investments in the financial market leading up to the crash in 2007-2008. This inflationary bubble was the result of massive deregulation of the US financial market by the US government in the Gilded Age of Capitalism leading up to 2008. This deregulation created massive amounts of complex financial vehicles to move wealth, encouraging the growth of shadow banking systems in the US, and encouraging existing banks to invest in, and move risk into unregulated shadow banks and money markets, all while cutting capital stocks and increasing leverage. This system was created do to a lack of concern for risk by US regulators and financial institutions - the good times were good, and nobody expected a crash. When a crash did occur, it caught everyone by surprise, and caused a panic in financial markets, as both bad investments, and anything tainted by them, were quickly sold as investors fled and withdrew cash, funding and called in outstanding loans in a frenzy. This frenzy saw the collapse, fire-sale, or government takeover of numerous massive financial firms such as AIG, Merrill Lynch, Wachovia, Lehman Brothers, and so on. Billions upon billions of dollars evaporated, and the global economy itself was put into recession.
US regulators began to step in at a higher level, purchasing too big to fail financial institutions, and creating a raft of new legislation to ensure the system did not fall apart. This was all done in the face of extreme scrutiny and criticism from both political parties in the States. On the left, many argued that the rich should suffer for their financial mismanagement, and on the right, many argued against moral hazard, stating banks should fail as a lesson to others. Even so, a general collapse of the financial institutions of the US would have been devastating politically, and possibly around the world. Stepping in caused the system to generally stabilize, although recovery continues to this day.
The afterward of this book is an analysis of whether the US is prepared for another crisis. The answer is largely no. Deregulation has largely continued after the recession, although the authors note greater scrutiny of financial firms is now general practice. The authors argue that the US is somewhat more prepared that in 2008, but that the threat of recession continues. The authors also note that in the current political climate in the US, as bipartisanism continues to increase and become more prevalent, that government officials will have great difficulty reaching decisions as they did in 2008, which may paralyze the system during future crisis. The increasingly unstable situation in global trade, due to the US' insistence on renegotiating trade deals with allies and targeting rivals with trade wars, is a destabilizing factor. The extremely hot stock market in the States is also concerning - is this another financial bubble? The authors note that the US is not out of the woods, and caution more conservative financial regulation to ensure banks have more capital on the books, less leverage, and more tools and options at regulators disposal to combat financial issues and ensure the bank runs of 2008 do not return.
All in all, a very informative book. The book is capped off with a very interesting series of charts, figures and graphs outlining the history of the recession, its impacts, and aftermath. As a post-op book of the crisis, written by the three main players, this is one to read for sure as a definitive and authoritative account of the crisis now that is is largely said and done. It offers fresh insight, intimate perspective, and clear thoughts and results. Although it is of the perspective of three of the main players - which may turn some off for their involvement - this book should remain in ones mind as a major work on the topic, and an excellent perspective for those looking to build a holistic viewpoint. A fabulous read, and easily recommended for any looking to refresh their knowledge on the topic, and read about the entire crisis from an on the ground perspective.
This book starts with a blow by blow account of the beginning of the crisis, chronicling the inflationary growth of real estate investments in the financial market leading up to the crash in 2007-2008. This inflationary bubble was the result of massive deregulation of the US financial market by the US government in the Gilded Age of Capitalism leading up to 2008. This deregulation created massive amounts of complex financial vehicles to move wealth, encouraging the growth of shadow banking systems in the US, and encouraging existing banks to invest in, and move risk into unregulated shadow banks and money markets, all while cutting capital stocks and increasing leverage. This system was created do to a lack of concern for risk by US regulators and financial institutions - the good times were good, and nobody expected a crash. When a crash did occur, it caught everyone by surprise, and caused a panic in financial markets, as both bad investments, and anything tainted by them, were quickly sold as investors fled and withdrew cash, funding and called in outstanding loans in a frenzy. This frenzy saw the collapse, fire-sale, or government takeover of numerous massive financial firms such as AIG, Merrill Lynch, Wachovia, Lehman Brothers, and so on. Billions upon billions of dollars evaporated, and the global economy itself was put into recession.
US regulators began to step in at a higher level, purchasing too big to fail financial institutions, and creating a raft of new legislation to ensure the system did not fall apart. This was all done in the face of extreme scrutiny and criticism from both political parties in the States. On the left, many argued that the rich should suffer for their financial mismanagement, and on the right, many argued against moral hazard, stating banks should fail as a lesson to others. Even so, a general collapse of the financial institutions of the US would have been devastating politically, and possibly around the world. Stepping in caused the system to generally stabilize, although recovery continues to this day.
The afterward of this book is an analysis of whether the US is prepared for another crisis. The answer is largely no. Deregulation has largely continued after the recession, although the authors note greater scrutiny of financial firms is now general practice. The authors argue that the US is somewhat more prepared that in 2008, but that the threat of recession continues. The authors also note that in the current political climate in the US, as bipartisanism continues to increase and become more prevalent, that government officials will have great difficulty reaching decisions as they did in 2008, which may paralyze the system during future crisis. The increasingly unstable situation in global trade, due to the US' insistence on renegotiating trade deals with allies and targeting rivals with trade wars, is a destabilizing factor. The extremely hot stock market in the States is also concerning - is this another financial bubble? The authors note that the US is not out of the woods, and caution more conservative financial regulation to ensure banks have more capital on the books, less leverage, and more tools and options at regulators disposal to combat financial issues and ensure the bank runs of 2008 do not return.
All in all, a very informative book. The book is capped off with a very interesting series of charts, figures and graphs outlining the history of the recession, its impacts, and aftermath. As a post-op book of the crisis, written by the three main players, this is one to read for sure as a definitive and authoritative account of the crisis now that is is largely said and done. It offers fresh insight, intimate perspective, and clear thoughts and results. Although it is of the perspective of three of the main players - which may turn some off for their involvement - this book should remain in ones mind as a major work on the topic, and an excellent perspective for those looking to build a holistic viewpoint. A fabulous read, and easily recommended for any looking to refresh their knowledge on the topic, and read about the entire crisis from an on the ground perspective.
April 28, 2019
I was expecting a lot more technical insight, in hindsight.
November 20, 2019
This is a calm book. It is a rational book. It tells the story of how the financial crisis was 'managed' by the state. It tells the tale about how the banks and mortgage providers were bailed out by public money.
It has a cool tone. It seems rational. Logical.
But we know it was not. The Global Financial Crisis was created by greed, vanity, ego and profound ignorance and foolishness. A collective of rich white men were prepared to let the economy burn, jobs be destroyed and lives shattered so they could summon a big payday.
They failed. And they brought us all down with them. The consequences of the public bailout is that - a decade later - health and education is deeply underfunded because those bankers were supposedly 'too big to fail.'
That narrative plays at the edges of this book. Significantly, when the tale is told, the conclusion - written in our changing political hurricane - is stark and - perhaps - reflexive.
I'll summon a few telling examples.
"And many of the things we did appeared to reward the very financial industry that had dragged the world into the crisis in the first place.”
The use of the word 'appeared' is important.
“Fortunately, before the crisis, America’s Keynesian arsenal was reasonably well stocked … Today, the Keynesian arsenal looks far more constrained, which could be a significant handicap in a serious crisis.”
That is a poignant warning for our future... And...
“The enemy is forgetting.”
I read a lot of books about the crisis in economics, politics, social structures and education. But I remain staggered that the GFC is endless swept away to the margins of contemporary history in favour of 'a war on terrorism'
The GFC demonstrated that our system is rotten. The structures are rotten. Our ideologies that value the gathering of money regardless of its cost to our environment and our people brought the world to its knees. And that system was propped up by public money and state regulation.
Those anti-state forces and private interest groups are laughing at us.
It is in the interests of the powerful to forget. It is in the interests of the disempowered to remember, with vitriol and real anger.
It has a cool tone. It seems rational. Logical.
But we know it was not. The Global Financial Crisis was created by greed, vanity, ego and profound ignorance and foolishness. A collective of rich white men were prepared to let the economy burn, jobs be destroyed and lives shattered so they could summon a big payday.
They failed. And they brought us all down with them. The consequences of the public bailout is that - a decade later - health and education is deeply underfunded because those bankers were supposedly 'too big to fail.'
That narrative plays at the edges of this book. Significantly, when the tale is told, the conclusion - written in our changing political hurricane - is stark and - perhaps - reflexive.
I'll summon a few telling examples.
"And many of the things we did appeared to reward the very financial industry that had dragged the world into the crisis in the first place.”
The use of the word 'appeared' is important.
“Fortunately, before the crisis, America’s Keynesian arsenal was reasonably well stocked … Today, the Keynesian arsenal looks far more constrained, which could be a significant handicap in a serious crisis.”
That is a poignant warning for our future... And...
“The enemy is forgetting.”
I read a lot of books about the crisis in economics, politics, social structures and education. But I remain staggered that the GFC is endless swept away to the margins of contemporary history in favour of 'a war on terrorism'
The GFC demonstrated that our system is rotten. The structures are rotten. Our ideologies that value the gathering of money regardless of its cost to our environment and our people brought the world to its knees. And that system was propped up by public money and state regulation.
Those anti-state forces and private interest groups are laughing at us.
It is in the interests of the powerful to forget. It is in the interests of the disempowered to remember, with vitriol and real anger.
May 14, 2019
The Triumvirate of Safety has gathered to write Firefighting: The Financial Crisis and its Lessons (2019), a short history of the nature and resolution of the 2008 financial crisis. The Triumvirate is, of course, Ben Bernanke, chairman of the Federal Reserve Board; Timothy Geithner, president of the Federal Reserve Bank of New York; and Henry Paulson, Secretary of the Treasury. These three men at the very center of the conflagration will tell us what went on, why it was such a surprise, what was done, and how the crisis changed our financial regulations and monetary policies.
My interest in this is both professional and personal. Professional because of my career as a financial economist, ending with a stint at the Federal Reserve System; personal because I was among the many of my ilk who didn't see the train wreck coming in spite of warnings by Karl "Chip" Case, a friend and highly respected real estate economist who was a professor at Wellesley College. Chip was way ahead of his time, and I was among the many blind mice.
The economic terrain for this review is consistent with the Triumvirate's experience, but shaded by my own take on events. The conclusions I draw are not necessarily theirs, so if you are interested in precisely what they say, read the book. It's a worthwhile description of the backstage forces that directed the path-breaking policies of the Federal Reserve and Treasury during the crisis.
The Back Story
The last great financial collapse—and the last episode of major new financial regulation— was in the early 1930s. In the following 75 years there was remarkable economic stability, particularly from 1985 to 2008, and popular myths like "housing prices don't go down" had long replaced memories of years when they did. By 2008 we had an old structure of financial regulations but an entirely new financial reality. For example,
¶ Commercial Banks were no longer the centerpiece of finance. That role had moved to the shadow banking system of investment banks, insurance companies, brokerage companies, mutual funds, and other institutions that were major providers and users of credit, and were also relatively free from the banking regulations of the 1930s.
¶ In order to survive, commercial banks were successfully pushing for deregulation that would allow them to extend their business into insurance, securities brokerage, and other lines that they had been excluded from by 1930s legislation. Among the first big breaks was the acquisition of Travelers Insurance by CitiBank.
¶ Leverage—the borrowing of money to finance activity—was in vogue. The capital cushion at brokerage companies and shadow banks was slim at best, and it was low at commercial banks as well. In addition, new leverage-creating financial instruments like credit default swaps and other derivatives were hitherto unrecognized sources of financial risk. So risk was increasing while equity was decreasing.
¶ The watchword of the new times was innovation, which included development of exotic and inscrutable financial instruments that would channel credit in new ways. Among these was the development of the Collateralized Mortgage Obligation (CMO) that would allow investors to create virtually risk-free investments in mortgages, or so it was thought. These innovations led to an increase in systemic risk as loans were made to subprime borrowers who couldn't normally get them under traditional credit standards.
¶ In contrast to earlier episodes, the financing of many shadow banks was out of whack. Institutions were holding portfolios of long-term securities of dubious value while financing them with short term liabilities like commercial paper. This set the system up for a credit freeze if the long-term assets fell in value, much like the Penn Central crisis of the 1970s but with much greater ramifications. This was the basis of the first major shadow bank failure at Bear Stearns.
¶ The business of lending had become Big Politics as government-sponsored credit agencies sprang up and grew large, leading politicians to clamor for new (lower) credit standards for "needy" borrowers. This acronymic politically-motivated industry included FNMA (the Federal National Mortgage Association ("Fannie Mae"), GNMA (the Government National Mortgage Association ("Ginnie Mae"), FHLMC (the Federal Home Loan Mortgage Corporation, "Freddie Mac"), the SLMC (Student Loan Marketing Corporation, "Sallie Mae"), and the SBA (Small Business Administration). These became vehicles for socially active lending to favored groups, groups that might not merit credit through normal channels.
Still, in my view, the underlying problem was not just the legacy of 1930s financial regulations, the financial innovation, and the proliferation of social lending. Underneath it all was an underlying sense of security derived from ignorance about the effectiveness of regulation and about the new financial innovations. This is an eternal problem: financial innovation always outstrips financial regulations. Regulations are constructed in a rear view mirror by folks who are slow to adapt to new things (we call them Members of Congress), and they are enforced by folks with no experience at identifying new sources of risk (we call them Bureaucrats).
In contrast, financial innovations are constructed by quick-witted entrepreneurial minds who are actually in the trenches, see the gaps in existing regulations, want to do an end run, have (or hire) quick minds to construct the end run, and don't intend to hang around until the party is over. There isn't a snowball's chance in Hell that the former will be ahead of the latter!
It's not a message people want to hear, but regulation is not, and never will be, the effective instrument that we imagine—it's a short-term solution and a long-term palliative. it might be necessary and inevitable, if just for its veneer of safety, but it won't ever prevent debacles.
Financial Psychology in the New Era
The particular financial innovations that undid the economy of Main Street in 2008 were CMOs, particularly those containing "subprime" mortgages. These were individual mortgage loans to borrowers on the financial edge that had been packaged together in a bundle and sold to investors. Similar packages were constructed for business loans (Collateralized Loan Obligations, or CLOs), corporate debt (Collateralized Debt Obligations, CDOs), student loans, and so on.
Each CMO was advertised as "low risk" because, it was thought, the probability of default on any one mortgage in a CMO was independent of the default probabilities of the others—Jane Roe's default on her mortgage would not be related to John Doe's default on his mortgage; bad default experience in the South had no implications for experience in the West. This principle was derived from simple statistics: aggregating independent risks reduces overall risk; it's the principle underlying all insurance contracts. But while risks might be uncorrelated under normal conditions, in a financial crisis all values are highly correlated—everything goes down in value.
This aggregation of risks was not alone in bringing down the financial system. There had to be a cataclysmic flaw in the financial system to trigger the disaster. That flaw was in the psychology of risk management, in particular, it was in the fundamental problem of moral hazard, a problem well known to insurance companies.
The moral hazard problem is simple: if I am insured against my house burning down, I will invest less in preventing fires by buying alarm systems, installing sprinkler systems, cleaning up debris, and so on. So the act of insurance creates the fact of increased risk. Insurance companies know this and monitor the properties they insure to confirm compliance. But few saw that the appearance of insurance through financial innovations like credit default swaps led to an increase in financial risk-taking; theory said that it just distributed existing risk toward those more able to bear it.
Building a CMO
Creating a CMO is a complex process allowing many parties to skew the product in their own interests. Consider the innovation of the CMO (Collateralized Mortgage Obligation), the security package at the heart of the debacle. Putting together a CMO requires several steps, each done by a different party with a different agenda.
First, investors in the CMO will want assurance that the underlying assets are in place and are correctly valued. So you need an assessment of the quality and value of each mortgaged property—the condition of the property, its location, and so on. For this you turn to a real estate assessor, often just a realtor.
Second, you have to decide how to select which among the many available mortgages to put into a specific CMO—should they be on properties in the same location, the same condition, and so on? For this you rely on the services of a CMO bundler, typically a financial agent who understand the product and who hopefully works in his client's interests. Here we find many instances of bundlers who knew how bad some of the mortgages were and still put them into a bundle; those folks knew that they were constructing something that could well collapse but by then they would be out of the picture. Sometimes they bet against their own work by constructing fragile CMOs and betting against them by selling the product short. That's not the right incentive system to create.
Third, having put the CMO together, selling it to financial agents with fiduciary obligations requires confirmation of safety. This was done by a rating agency like Moody's or Standard and Poor. Those rating agencies would get paid by the CMO creators to put a stamp of approval on them. This means that the rating agency should be able to determine just how the package (not just the individual securities) will behave under different economic scenarios. But the rating agencies had no clue how to evaluate the new instruments, a problem that didn't prevent them from liberally dispensing AAA ratings.
So what went wrong? Well, everything! The CMOs were built on a flawed premise that the values of the individual properties were uncorrelated. They were not! Second, the real estate assessors failed in their jobs—all to often the mortgaged properties didn't even exist, or were at the wrong locations, or were in much worse condition than stated. Third, the CMO bundlers often had no clue how to put the packages together to create lower risk; even worse, in one highly publicized case the bundler also sold the package he created for a major investment short, thus making a lot of money when the collapse came; it seems clear that he had put a bundle of dogs together knowing that it would go down in value! Fourth, the rating agencies failed dismally because they had absolutely no idea how the individual properties in a CMO were correlated; they simply bought into the flawed assumption of independence of risks and assigned AAA-ratings to highly risky packages.
OK, everybody screwed up in this debacle—sometimes it was incompetence, sometimes it was malice. Was there some common problem that underlay the whole thing? The answer is, I think, yes! Way deep down underneath the mess was a "kick the can down the road" mentality. When we observe something is wrong, we can address it before the tsunami hits, or we can simply move that something on to someone else and give them the risk; the latter protects you at the risk of systemic instability. This psychological problem was inherent in the investment banking system of 2008. Banks no longer held the securities they originated—they sold them to someone else; realtors who assessed property had no skin in the game, nor did bundlers, or the salesmen who sold the CMOs, or the rating agencies. Each party played a temporary role in the movement of a CMO to its ultimate holders. Everyone could kick the can down the road, but the can itself never disappeared!
Implications for Financial Regulation
So what do you do about this? Well, the lesson of the Great Depression should be taken to heart. There will be new financial regulations imposed, they will be designed to address the problems of 2008, over time the financial system will adapt and risks will increase as a new financial world arises, and when the generation of 2008 is gone—and with it the social memory of that debacle has faded away—those new risks will create another debacle which will come as a great surprise.
New regulation is the only soporific we have, so it must be done to demonstrate that we are on top of the situation. There is no choice. But we are like the little Dutch boy putting our finger in the dike. Our "finger" of new regulation is, of course, not really effective; but it appears to be effective because nothing bad happens for a very long time. So we develop confidence in it. Then at some future date we remove our finger from the dike—and the entire dike collapses.
From this experience the Dutch boy concludes that his finger of regulation was really holding the water back when, in reality, other people also had their fingers in the dike! The water was really held back by the now-gone social memory that raised red flags when risk levels increased. So when the dike breaks, we adopt new regulations to construct a new and stronger dike, and so on.
The Post-2008 Regulatory Environment
Since 2008 there have been a number of changes in banking regulation and legislation proposed. Many of these are embedded in the Dodd -Frank Act Wall Street Reform and Consumer Protection Act, passed in 2010. It is intended to strengthen the regulation of those areas shown particularly weak in 2008. The key elements are:
¶ Monitoring Financial Fragility: Created the Financial Stability and Oversight Committee chaired by the Treasury Secretary to scrutinize the health of banks, brokerage institutions, and investment banks and express any concerns to their primary regulatory agency.
¶ Consumer Lending: Created a Consumer Financial Protection Bureau to protect consumers from inappropriate lending practices in credit cards and consumer loans.
¶ Insurance: Created the Federal Insurance Office under the Treasury to monitor the health of large insurance companies like AIG that traded in financial derivatives like swaps .
¶ Proprietary Trading: Mandated the Volcker Rule for commercial banks, limiting their ability to engage in "proprietary trading" of risky securities for their own account.
¶ Swaps and Derivatives: Requires that the SEC and CFTC monitor risky derivatives and that such instruments be traded within a clearing house that maintains data on who owns and who sells those instruments.
¶ Credit Ratings: Created an Office of Credit Ratings at the SEC to monitor the activities of ratings like Moody's and Standard and Poor's, with the goal of ensuring that their methods are appropriate.
And in 2018 . . . ?
After only eight years of Dodd-Frank the Trump Administration is aready attempting to relax the Dodd-Frank Act. (see https://www.nytimes.com/2019/05/13/us...). Perhaps we won't have to wait 75 years for the next financial crisis.
My interest in this is both professional and personal. Professional because of my career as a financial economist, ending with a stint at the Federal Reserve System; personal because I was among the many of my ilk who didn't see the train wreck coming in spite of warnings by Karl "Chip" Case, a friend and highly respected real estate economist who was a professor at Wellesley College. Chip was way ahead of his time, and I was among the many blind mice.
The economic terrain for this review is consistent with the Triumvirate's experience, but shaded by my own take on events. The conclusions I draw are not necessarily theirs, so if you are interested in precisely what they say, read the book. It's a worthwhile description of the backstage forces that directed the path-breaking policies of the Federal Reserve and Treasury during the crisis.
The Back Story
The last great financial collapse—and the last episode of major new financial regulation— was in the early 1930s. In the following 75 years there was remarkable economic stability, particularly from 1985 to 2008, and popular myths like "housing prices don't go down" had long replaced memories of years when they did. By 2008 we had an old structure of financial regulations but an entirely new financial reality. For example,
¶ Commercial Banks were no longer the centerpiece of finance. That role had moved to the shadow banking system of investment banks, insurance companies, brokerage companies, mutual funds, and other institutions that were major providers and users of credit, and were also relatively free from the banking regulations of the 1930s.
¶ In order to survive, commercial banks were successfully pushing for deregulation that would allow them to extend their business into insurance, securities brokerage, and other lines that they had been excluded from by 1930s legislation. Among the first big breaks was the acquisition of Travelers Insurance by CitiBank.
¶ Leverage—the borrowing of money to finance activity—was in vogue. The capital cushion at brokerage companies and shadow banks was slim at best, and it was low at commercial banks as well. In addition, new leverage-creating financial instruments like credit default swaps and other derivatives were hitherto unrecognized sources of financial risk. So risk was increasing while equity was decreasing.
¶ The watchword of the new times was innovation, which included development of exotic and inscrutable financial instruments that would channel credit in new ways. Among these was the development of the Collateralized Mortgage Obligation (CMO) that would allow investors to create virtually risk-free investments in mortgages, or so it was thought. These innovations led to an increase in systemic risk as loans were made to subprime borrowers who couldn't normally get them under traditional credit standards.
¶ In contrast to earlier episodes, the financing of many shadow banks was out of whack. Institutions were holding portfolios of long-term securities of dubious value while financing them with short term liabilities like commercial paper. This set the system up for a credit freeze if the long-term assets fell in value, much like the Penn Central crisis of the 1970s but with much greater ramifications. This was the basis of the first major shadow bank failure at Bear Stearns.
¶ The business of lending had become Big Politics as government-sponsored credit agencies sprang up and grew large, leading politicians to clamor for new (lower) credit standards for "needy" borrowers. This acronymic politically-motivated industry included FNMA (the Federal National Mortgage Association ("Fannie Mae"), GNMA (the Government National Mortgage Association ("Ginnie Mae"), FHLMC (the Federal Home Loan Mortgage Corporation, "Freddie Mac"), the SLMC (Student Loan Marketing Corporation, "Sallie Mae"), and the SBA (Small Business Administration). These became vehicles for socially active lending to favored groups, groups that might not merit credit through normal channels.
Still, in my view, the underlying problem was not just the legacy of 1930s financial regulations, the financial innovation, and the proliferation of social lending. Underneath it all was an underlying sense of security derived from ignorance about the effectiveness of regulation and about the new financial innovations. This is an eternal problem: financial innovation always outstrips financial regulations. Regulations are constructed in a rear view mirror by folks who are slow to adapt to new things (we call them Members of Congress), and they are enforced by folks with no experience at identifying new sources of risk (we call them Bureaucrats).
In contrast, financial innovations are constructed by quick-witted entrepreneurial minds who are actually in the trenches, see the gaps in existing regulations, want to do an end run, have (or hire) quick minds to construct the end run, and don't intend to hang around until the party is over. There isn't a snowball's chance in Hell that the former will be ahead of the latter!
It's not a message people want to hear, but regulation is not, and never will be, the effective instrument that we imagine—it's a short-term solution and a long-term palliative. it might be necessary and inevitable, if just for its veneer of safety, but it won't ever prevent debacles.
Financial Psychology in the New Era
The particular financial innovations that undid the economy of Main Street in 2008 were CMOs, particularly those containing "subprime" mortgages. These were individual mortgage loans to borrowers on the financial edge that had been packaged together in a bundle and sold to investors. Similar packages were constructed for business loans (Collateralized Loan Obligations, or CLOs), corporate debt (Collateralized Debt Obligations, CDOs), student loans, and so on.
Each CMO was advertised as "low risk" because, it was thought, the probability of default on any one mortgage in a CMO was independent of the default probabilities of the others—Jane Roe's default on her mortgage would not be related to John Doe's default on his mortgage; bad default experience in the South had no implications for experience in the West. This principle was derived from simple statistics: aggregating independent risks reduces overall risk; it's the principle underlying all insurance contracts. But while risks might be uncorrelated under normal conditions, in a financial crisis all values are highly correlated—everything goes down in value.
This aggregation of risks was not alone in bringing down the financial system. There had to be a cataclysmic flaw in the financial system to trigger the disaster. That flaw was in the psychology of risk management, in particular, it was in the fundamental problem of moral hazard, a problem well known to insurance companies.
The moral hazard problem is simple: if I am insured against my house burning down, I will invest less in preventing fires by buying alarm systems, installing sprinkler systems, cleaning up debris, and so on. So the act of insurance creates the fact of increased risk. Insurance companies know this and monitor the properties they insure to confirm compliance. But few saw that the appearance of insurance through financial innovations like credit default swaps led to an increase in financial risk-taking; theory said that it just distributed existing risk toward those more able to bear it.
Building a CMO
Creating a CMO is a complex process allowing many parties to skew the product in their own interests. Consider the innovation of the CMO (Collateralized Mortgage Obligation), the security package at the heart of the debacle. Putting together a CMO requires several steps, each done by a different party with a different agenda.
First, investors in the CMO will want assurance that the underlying assets are in place and are correctly valued. So you need an assessment of the quality and value of each mortgaged property—the condition of the property, its location, and so on. For this you turn to a real estate assessor, often just a realtor.
Second, you have to decide how to select which among the many available mortgages to put into a specific CMO—should they be on properties in the same location, the same condition, and so on? For this you rely on the services of a CMO bundler, typically a financial agent who understand the product and who hopefully works in his client's interests. Here we find many instances of bundlers who knew how bad some of the mortgages were and still put them into a bundle; those folks knew that they were constructing something that could well collapse but by then they would be out of the picture. Sometimes they bet against their own work by constructing fragile CMOs and betting against them by selling the product short. That's not the right incentive system to create.
Third, having put the CMO together, selling it to financial agents with fiduciary obligations requires confirmation of safety. This was done by a rating agency like Moody's or Standard and Poor. Those rating agencies would get paid by the CMO creators to put a stamp of approval on them. This means that the rating agency should be able to determine just how the package (not just the individual securities) will behave under different economic scenarios. But the rating agencies had no clue how to evaluate the new instruments, a problem that didn't prevent them from liberally dispensing AAA ratings.
So what went wrong? Well, everything! The CMOs were built on a flawed premise that the values of the individual properties were uncorrelated. They were not! Second, the real estate assessors failed in their jobs—all to often the mortgaged properties didn't even exist, or were at the wrong locations, or were in much worse condition than stated. Third, the CMO bundlers often had no clue how to put the packages together to create lower risk; even worse, in one highly publicized case the bundler also sold the package he created for a major investment short, thus making a lot of money when the collapse came; it seems clear that he had put a bundle of dogs together knowing that it would go down in value! Fourth, the rating agencies failed dismally because they had absolutely no idea how the individual properties in a CMO were correlated; they simply bought into the flawed assumption of independence of risks and assigned AAA-ratings to highly risky packages.
OK, everybody screwed up in this debacle—sometimes it was incompetence, sometimes it was malice. Was there some common problem that underlay the whole thing? The answer is, I think, yes! Way deep down underneath the mess was a "kick the can down the road" mentality. When we observe something is wrong, we can address it before the tsunami hits, or we can simply move that something on to someone else and give them the risk; the latter protects you at the risk of systemic instability. This psychological problem was inherent in the investment banking system of 2008. Banks no longer held the securities they originated—they sold them to someone else; realtors who assessed property had no skin in the game, nor did bundlers, or the salesmen who sold the CMOs, or the rating agencies. Each party played a temporary role in the movement of a CMO to its ultimate holders. Everyone could kick the can down the road, but the can itself never disappeared!
Implications for Financial Regulation
So what do you do about this? Well, the lesson of the Great Depression should be taken to heart. There will be new financial regulations imposed, they will be designed to address the problems of 2008, over time the financial system will adapt and risks will increase as a new financial world arises, and when the generation of 2008 is gone—and with it the social memory of that debacle has faded away—those new risks will create another debacle which will come as a great surprise.
New regulation is the only soporific we have, so it must be done to demonstrate that we are on top of the situation. There is no choice. But we are like the little Dutch boy putting our finger in the dike. Our "finger" of new regulation is, of course, not really effective; but it appears to be effective because nothing bad happens for a very long time. So we develop confidence in it. Then at some future date we remove our finger from the dike—and the entire dike collapses.
From this experience the Dutch boy concludes that his finger of regulation was really holding the water back when, in reality, other people also had their fingers in the dike! The water was really held back by the now-gone social memory that raised red flags when risk levels increased. So when the dike breaks, we adopt new regulations to construct a new and stronger dike, and so on.
The Post-2008 Regulatory Environment
Since 2008 there have been a number of changes in banking regulation and legislation proposed. Many of these are embedded in the Dodd -Frank Act Wall Street Reform and Consumer Protection Act, passed in 2010. It is intended to strengthen the regulation of those areas shown particularly weak in 2008. The key elements are:
¶ Monitoring Financial Fragility: Created the Financial Stability and Oversight Committee chaired by the Treasury Secretary to scrutinize the health of banks, brokerage institutions, and investment banks and express any concerns to their primary regulatory agency.
¶ Consumer Lending: Created a Consumer Financial Protection Bureau to protect consumers from inappropriate lending practices in credit cards and consumer loans.
¶ Insurance: Created the Federal Insurance Office under the Treasury to monitor the health of large insurance companies like AIG that traded in financial derivatives like swaps .
¶ Proprietary Trading: Mandated the Volcker Rule for commercial banks, limiting their ability to engage in "proprietary trading" of risky securities for their own account.
¶ Swaps and Derivatives: Requires that the SEC and CFTC monitor risky derivatives and that such instruments be traded within a clearing house that maintains data on who owns and who sells those instruments.
¶ Credit Ratings: Created an Office of Credit Ratings at the SEC to monitor the activities of ratings like Moody's and Standard and Poor's, with the goal of ensuring that their methods are appropriate.
And in 2018 . . . ?
After only eight years of Dodd-Frank the Trump Administration is aready attempting to relax the Dodd-Frank Act. (see https://www.nytimes.com/2019/05/13/us...). Perhaps we won't have to wait 75 years for the next financial crisis.
November 1, 2022
This is yet another history of the 2008 financial crisis/mortgage meltdown except it is told by the architects of the policy responses. It is a fairly balanced and dispassionate description of events (only mildly self-serving) that provides some insight into the policy decisions made (e.g. why AIG was saved and Bear Sterns and Lehman Brothers weren't). There is a lot of blame to go around for the crisis, and the books emphasizes how important group psychological processes were to the policy response. We can see how today this is guiding the Fed's response to managing inflation today, and the "soft-landing" happy talk.
June 12, 2019
The material gives a good overview of the 2008 financial crisis from the perspective of the government - it dives into the tools, methods, and strategies the Fed used to prevent another Great Depression.
Gave it three stars because, although a good overview, it doesn’t go into great detail about the crisis or the tools the government used. I also found that a lot of the writing seemed to be justifying the federal stimulus from a more biased position (i.e. “we sure did a great job despite everyone hating us! Stop hating us we did it for you!”). I’m sure this argument would have been better served with a factual analysis to support that the stimulus prevented a depression (and the data basically supports that so not sure why he chose this route).
Overall, pretty quick read and decent overview - I’d recommend it if you have an evening to burn.
Gave it three stars because, although a good overview, it doesn’t go into great detail about the crisis or the tools the government used. I also found that a lot of the writing seemed to be justifying the federal stimulus from a more biased position (i.e. “we sure did a great job despite everyone hating us! Stop hating us we did it for you!”). I’m sure this argument would have been better served with a factual analysis to support that the stimulus prevented a depression (and the data basically supports that so not sure why he chose this route).
Overall, pretty quick read and decent overview - I’d recommend it if you have an evening to burn.
April 30, 2019
I listened to the audiobook.
It's a good and concise rundown of the response to the Global Financial Crisis that created the Great Recession. Having already read Bernanke's memoir, though, there wasn't much for me to get out of it other than a few details about what Treasury was up to.
If you haven't heard anything about what the crisis response was from the inside, this is probably going to be good for you. There is a little econ/finance jargon in it, but it's doable. If you have, then you can safely skip this except maybe for the last chapter.
It's a good and concise rundown of the response to the Global Financial Crisis that created the Great Recession. Having already read Bernanke's memoir, though, there wasn't much for me to get out of it other than a few details about what Treasury was up to.
If you haven't heard anything about what the crisis response was from the inside, this is probably going to be good for you. There is a little econ/finance jargon in it, but it's doable. If you have, then you can safely skip this except maybe for the last chapter.
June 7, 2019
extremely short and zero new insight
very disappointing
very disappointing
October 10, 2019
A bit “well they would say that wouldn’t they?” but really interesting
October 15, 2019
Bernanke, Geithner, and Paulson individually wrote their own memoirs on the Great Recession. They combined to write this book, a short (in a good sense )book focused on a technical documentation on the origin, trigger, burning, firefighting, and eventual control of the Great Recession.
How is it different from individual memoirs? In the individual memoirs there is space to recount the emotional experience of facing the cliff and staring into the abyss. There is none of the quiet reflection in this book.
- For example, in individual books, Paulson reflected the moment being asked by a concerned Qishan Wang how much value China’s dollar denominated assets (with an acronym SAFE) still holds, a drastic turn of table just within a decade of witnessing the East Asian crisis when he’d be giving advice to Wang.
- Or, after many merge-deals were scraped from the ‘two drunkards in a ditch’ concern (i.e. Barclays failed merge attempt), the hope of an orderly rescue was dimmed, and the prospect of a next buyer was exciting and unnerving. They were worried a deal would be scuttled by the tiniest technicalities: Mitsubishi’s purchase of Morgan Stanley shares as an emergency funding, happened on a weekend when electronic wiring was unavailable, and they needed to write a physical cheque to complete the transaction. They wrote about fretting using cheque as a payment method in individual book, reflecting how much a momentous action depends on a small technicality, how frail the entire process was, but no ink would not be spilled here on sentimentalities.
- Or the many personnel processes and decisions that they reflected on during individual books. Paulson wrote how a young GS Neel Kashkari cold called to help with the treasury transition, and things didn’t look good or comparable to what he had available at GS…
You would still find the individual books corroborates with the combined book. Many phrases and accounts are familiar:
- Don’t wish away a fire by not purchasing firefighting equipment,
- Controlling the last financial crisis was made possible by the remaining bipartisan collaboration at the time,
- Geithner’s ‘foam the runway’, his e-Harmony nickname, Chuck Schumer’s comment that one of his public speech was like a boy at his bar mitzvah.
OK, this book still left me wonder about Rashomon. The individual memoirs signaled that they do not much like Sheila Bair (the chairwomen of FDIC)’s handling during the crisis protecting her agency and trying to dare the banks. In this combined book which tried hard to look a unified account, they again aired these grievances. It would be interesting if they included Bair, to have people of different persuasions coming together to write, and to reflect on the lessons.
How is it different from individual memoirs? In the individual memoirs there is space to recount the emotional experience of facing the cliff and staring into the abyss. There is none of the quiet reflection in this book.
- For example, in individual books, Paulson reflected the moment being asked by a concerned Qishan Wang how much value China’s dollar denominated assets (with an acronym SAFE) still holds, a drastic turn of table just within a decade of witnessing the East Asian crisis when he’d be giving advice to Wang.
- Or, after many merge-deals were scraped from the ‘two drunkards in a ditch’ concern (i.e. Barclays failed merge attempt), the hope of an orderly rescue was dimmed, and the prospect of a next buyer was exciting and unnerving. They were worried a deal would be scuttled by the tiniest technicalities: Mitsubishi’s purchase of Morgan Stanley shares as an emergency funding, happened on a weekend when electronic wiring was unavailable, and they needed to write a physical cheque to complete the transaction. They wrote about fretting using cheque as a payment method in individual book, reflecting how much a momentous action depends on a small technicality, how frail the entire process was, but no ink would not be spilled here on sentimentalities.
- Or the many personnel processes and decisions that they reflected on during individual books. Paulson wrote how a young GS Neel Kashkari cold called to help with the treasury transition, and things didn’t look good or comparable to what he had available at GS…
You would still find the individual books corroborates with the combined book. Many phrases and accounts are familiar:
- Don’t wish away a fire by not purchasing firefighting equipment,
- Controlling the last financial crisis was made possible by the remaining bipartisan collaboration at the time,
- Geithner’s ‘foam the runway’, his e-Harmony nickname, Chuck Schumer’s comment that one of his public speech was like a boy at his bar mitzvah.
OK, this book still left me wonder about Rashomon. The individual memoirs signaled that they do not much like Sheila Bair (the chairwomen of FDIC)’s handling during the crisis protecting her agency and trying to dare the banks. In this combined book which tried hard to look a unified account, they again aired these grievances. It would be interesting if they included Bair, to have people of different persuasions coming together to write, and to reflect on the lessons.
This entire review has been hidden because of spoilers.
March 19, 2020
(4.5) Fascinating to read events from those at the top/on the inside
Also kind of frightening as so much hinges on their thinking, their connections, and their powers of persuasion (almost “bluffing”?). I worry that currrnt/future administrations will have nowhere near the brainpower, focus on long-term American interests over their industry connections/benefactors when a future global economy-destroying even occurs. I write this during 2020 COVID-19, which may well prove to be such a scenario.
Also kind of frightening as so much hinges on their thinking, their connections, and their powers of persuasion (almost “bluffing”?). I worry that currrnt/future administrations will have nowhere near the brainpower, focus on long-term American interests over their industry connections/benefactors when a future global economy-destroying even occurs. I write this during 2020 COVID-19, which may well prove to be such a scenario.
March 21, 2020
Written by the firefighters of the 2008 financial crisis - Bernanke, Geithner and Paulson. Amazed by how creative, persistent, and strong they have been to save the institutions despite the tremendous cost. Terrified by how similar it is to the current situation...
It is easy to accumulate wealth in an overheated market but takes long to recover. Hope we still remember some of the lessons.
It is easy to accumulate wealth in an overheated market but takes long to recover. Hope we still remember some of the lessons.
April 13, 2023
I could have done better tbh
September 16, 2024
this trio provided a novel insight into the regulatory rationale behind the GFC, and i was especially fond of the charts which did a great job at breaking down some of the denser bits. i do think a voice of dissent would have added a lot - specifically the head of the FDIC that they had to “talk round” to guaranteeing all liabilities - or else a view into the broader global situation. it did come across as more than a little self-congratulatory but still an excellent resource for understanding the regulatory side of crisis response
June 26, 2019
A Primer on How the 2008 Financial Crisis was Handled and Preparedness for Future Crises
Significantly, each of the three authors has written his own book chronicling his actions and perceptions during the worst financial crisis since the 1930s Great Depression. This slim volume seems to be an attempt to reach a wider audience, to synthesize joint recollections of how the crisis was handled, defend actions, acknowledge a few mistakes, and make the case for strong regulatory powers to address future crises that will inevitably arise.
The book is worth reading, but the authors’ goal may be overly ambitious. The subject is still technical, despite the authors’ attempt to reach a wider public. Although there is a strong case, I believe, that the actions taken averted a catastrophic global recession and provided the foundation for a remarkable economic recovery in eight years, this is by no means a universal judgment. Critics will not be converted, and those who didn’t follow the events, now more than a decade old, may not plow through this short book designed to educate.
In common with other earth shattering crises (think the antecedents to World War I and World War II), in retrospect the 2008 financial crisis was the consequence of major structural and technological changes, the implications of which were not understood at the time.
In fact, this reader believes that insufficient space was given to how the markets had changed, and how new practices led to poorly understood risks. Most important, the securitization of mortgage and other debt insulated institutions originating loans from the consequences when those loans went bad. The rise of the repo market meant that when loans might have been renegotiated to the advantage of both lender and borrower (as in past downturns), it was often impossible for the borrower to identify the entity with which to negotiate. The rating agencies, on which a securitized market depended, were no longer the objective arbiters of credit quality but instead succumbed to greed. There were many incentives to provide an “A” rating to mortgages of dubious quality. The rating agencies thus were enablers of the crisis.
No one appreciated how leveraged were the non-banks that had become major players in the financial markets and who sidestepped regulatory review and capital requirements. These included insurer AIG who stood behind credit default swaps, the mortgage giants Fannie Mae and Freddie Mac, the investment banks such as Bear Stearns and Lehman, and eventually, as the crisis deepened, historically strong institutions such as General Electric, Morgan Stanley and Goldman Sachs. In fact, no institution was immune from the possibility of default and bankruptcy.
The authors do address the fact that the 2008 crash also reflected the boom and bust cycle known in financial markets for centuries — irrational exuberance followed by irrational fear.
A key point made by the authors, and one in which they may have had in mind in their effort to address a broader audience, is that it is vital for crisis managers (the Fed, the Treasury, the financial regulators) to have the tools they need before a crisis arises and not to be encumbered by the need for enabling legislation from Congress as panic spreads. The actions necessary to stabilize a financial system in crisis are never popular, they point out, and can get caught up in partisan politics. “A fire department should not have to call a town meeting to get the tools it needs to fight a blaze that threatens to get out of control.”
Indeed in the aftermath of the 2008 crisis, Congress has provided the regulators with some new tools but has also taken away some of the powers that helped with the firefighting. These are summarized not in the text but in one of the 74 pages of charts that form the appendix of the book. New tools initially included stronger capital requirements which have since been relaxed, stronger liquidity and funding requirements, and living wills, bankruptcy provisions, and resolution authority.
The Fed now has limitations on its authority to be lender of last resort. No money market fund guarantees or FDIC debt guarantees can be imposed without Congressional action. And the Fed has no authority to inject capital into failing institutions. These were all useful tools in 2008.
Sometimes shorter and simpler is better, but I’m not sure the rule applies in this case. Still, many will only invest time in a summary that tries to explain briefly the 2008 crisis and what actions were taken. The effort of Messrs. Bernanke, Geithner and Paulson will go some way in educating a lay audience and, best case scenario, broaden a wider public policy discussion about appropriate regulatory authority to quickly address the financial panics of the future.
Significantly, each of the three authors has written his own book chronicling his actions and perceptions during the worst financial crisis since the 1930s Great Depression. This slim volume seems to be an attempt to reach a wider audience, to synthesize joint recollections of how the crisis was handled, defend actions, acknowledge a few mistakes, and make the case for strong regulatory powers to address future crises that will inevitably arise.
The book is worth reading, but the authors’ goal may be overly ambitious. The subject is still technical, despite the authors’ attempt to reach a wider public. Although there is a strong case, I believe, that the actions taken averted a catastrophic global recession and provided the foundation for a remarkable economic recovery in eight years, this is by no means a universal judgment. Critics will not be converted, and those who didn’t follow the events, now more than a decade old, may not plow through this short book designed to educate.
In common with other earth shattering crises (think the antecedents to World War I and World War II), in retrospect the 2008 financial crisis was the consequence of major structural and technological changes, the implications of which were not understood at the time.
In fact, this reader believes that insufficient space was given to how the markets had changed, and how new practices led to poorly understood risks. Most important, the securitization of mortgage and other debt insulated institutions originating loans from the consequences when those loans went bad. The rise of the repo market meant that when loans might have been renegotiated to the advantage of both lender and borrower (as in past downturns), it was often impossible for the borrower to identify the entity with which to negotiate. The rating agencies, on which a securitized market depended, were no longer the objective arbiters of credit quality but instead succumbed to greed. There were many incentives to provide an “A” rating to mortgages of dubious quality. The rating agencies thus were enablers of the crisis.
No one appreciated how leveraged were the non-banks that had become major players in the financial markets and who sidestepped regulatory review and capital requirements. These included insurer AIG who stood behind credit default swaps, the mortgage giants Fannie Mae and Freddie Mac, the investment banks such as Bear Stearns and Lehman, and eventually, as the crisis deepened, historically strong institutions such as General Electric, Morgan Stanley and Goldman Sachs. In fact, no institution was immune from the possibility of default and bankruptcy.
The authors do address the fact that the 2008 crash also reflected the boom and bust cycle known in financial markets for centuries — irrational exuberance followed by irrational fear.
A key point made by the authors, and one in which they may have had in mind in their effort to address a broader audience, is that it is vital for crisis managers (the Fed, the Treasury, the financial regulators) to have the tools they need before a crisis arises and not to be encumbered by the need for enabling legislation from Congress as panic spreads. The actions necessary to stabilize a financial system in crisis are never popular, they point out, and can get caught up in partisan politics. “A fire department should not have to call a town meeting to get the tools it needs to fight a blaze that threatens to get out of control.”
Indeed in the aftermath of the 2008 crisis, Congress has provided the regulators with some new tools but has also taken away some of the powers that helped with the firefighting. These are summarized not in the text but in one of the 74 pages of charts that form the appendix of the book. New tools initially included stronger capital requirements which have since been relaxed, stronger liquidity and funding requirements, and living wills, bankruptcy provisions, and resolution authority.
The Fed now has limitations on its authority to be lender of last resort. No money market fund guarantees or FDIC debt guarantees can be imposed without Congressional action. And the Fed has no authority to inject capital into failing institutions. These were all useful tools in 2008.
Sometimes shorter and simpler is better, but I’m not sure the rule applies in this case. Still, many will only invest time in a summary that tries to explain briefly the 2008 crisis and what actions were taken. The effort of Messrs. Bernanke, Geithner and Paulson will go some way in educating a lay audience and, best case scenario, broaden a wider public policy discussion about appropriate regulatory authority to quickly address the financial panics of the future.
March 27, 2021
In this memoir, three men who headed the US financial system give us an inside view of how they saved Wall St from collapse. They liken themselves as firefighters. To me, they seem more like field surgeons, with the global financial system gasping on their table. They were determined to rescue their patient at whatever cost, with whatever tools at their disposal.
The patient was saved. There's little point in questioning the surgeons' decisions now. But how might we encourage Wall Street to change their ways to prevent the next heart attack? Who was supposed to nurse the wounds of Main St after Wall St started making record profits? I guess that's not the surgeons' concern.
They don't think the usual political prescriptions -- eg reinstating Glass-Stegall, breaking up too-big-to-fail banks -- would help. What would? Authorize govt agencies to give banks more taxpayer money next time.
The writers seem acutely aware of the eyes of history watching them. It's only human to tell their side and defend their legacy. My high rating is for the importance of learning what happened, and their ability to explain complex concepts simply. It's worth the time.
The patient was saved. There's little point in questioning the surgeons' decisions now. But how might we encourage Wall Street to change their ways to prevent the next heart attack? Who was supposed to nurse the wounds of Main St after Wall St started making record profits? I guess that's not the surgeons' concern.
They don't think the usual political prescriptions -- eg reinstating Glass-Stegall, breaking up too-big-to-fail banks -- would help. What would? Authorize govt agencies to give banks more taxpayer money next time.
The writers seem acutely aware of the eyes of history watching them. It's only human to tell their side and defend their legacy. My high rating is for the importance of learning what happened, and their ability to explain complex concepts simply. It's worth the time.
September 5, 2019
Hard for me to follow. Too bad politicians in charge won’t read and heed it.
June 16, 2024
A Book More on What Happened Rather than Why (with its Implications for the Future)
This book is relatively short, at about 130 pages of text. Of the roughly 130 pages of text, nearly all are dedicated to what the three authors had done, and what was happening at the time, rather than why it had happened. If one has already read any of the author's previous books on the subject (Bernanke's “The Courage to Act”, Geithner's “Stress Test: Reflections on Financial Crisis” and Paulson's “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System”) one will know very roughly 2/3 of what is in this book. If one has read any two of these books one would know about 90% and if one has read all three an asymptotic 100%. This is despite the fact that these books were written about 8 years ago. Hence both the strength and weakness of the book. For anyone who has not read any of these books the book provides an excellent summation of all three. For those who have read any one, if not more, there would be little to gain from reading this book.
Very unfortunately, the book provides very little in terms of analytic depth relating to why what happened did happen. The whole of this can be summed up in a single paragraph in the conclusion, on page 112. That is as follows:
“...the basic problems were too much risky leverage, too much runnable short-term financing, and the migration of too much risk to shadow banks where regulation was negligible and the Fed's emergency safety net was inaccessible. There were also too many major firms that were toa big and interconnected to fail without threatening the stability of the system, and the explosion of opaque mortgage-backed derivatives had turned the health of the of the housing market into a potential vector for panic. Meanwhile, America’s regulatory bureaucracy was fragmented and outdated, with no one responsible for monitoring and addressing systemic risks”.
All this was very obvious even 1-2 years after the crisis, never mind an entire decade after the event. And this is the great failure of the book. It does not take advantage of practically any of the very extensive research and literature that has covered the topic over the past some 8 years. Many of the little discussed, but important, factors that caused the crisis are not even mentioned, never mind seriously examined. For example, that much of the reserves of the insurance companies insuring many financial instruments were based on assets that were not solid in many cases (i.e., not much more solid than what they were intended to insure, such as CDOs being used as the basis of backing CDOs). That the ratings agencies did a very poor {and biased) job at rating sub-AAA rated instruments as AAA. In the late 1970s only a tiny share of private sector debt was rated as AAA by the ratings agencies. By the time of the crisis that had ballooned to a significant portion of debt. That the accounting firms and government regulators responsible for auditing and monitoring housing debt, especially sub-prime housing, were doing a very poor job at (i.e. witness the relatively large proportion of NINJA [and other fraudulent] loans in the mortgage market at the time). Etc., Etc, Etc. There has been extensive empirical research an these topics since the author's three books were originally published yet this is utterly ignored in this book.
Naturally, considering the fact that the coverage of “why” is weak, it inevitably follows that the policy recommendations made by the three authors is also quite weak (and self-evident even some 8 or so years ago, never mind today). Also weak, in that it is so self-evident, are the author's analysis of the economy in terms of its ability to fend off a future similar crisis. The authors point out that the currently prevailing low interest rates, high government debt and the results of the previous decade's high level of “quantitative easing” have greatly reduced the ammunition available to fight any future crisis. This, however, is not exactly a revelation even to someone who has only had one or two macroeconomics classes. Plus they also leave unmentioned, as a factor further weakening the economy's ability to bounce back from any blows, the extremely important facts that there has been little debt deleveraging since the crisis and private sector debt (in particular corporate) is near its 2007-2008 levels.
In short, this book is really of value only to laymen who have not really read much on the topic. It would be of value to those who have not read any of the three previous books on the subject. However, even for that audience, there are other books that do a much better job at analyzing and discussing the crisis that were published 1-3 years after the crisis (i.e.,., at around the same time as Paulson, Bernanke and Geithner's original books were published). Examples include Alan Blinder's "After the Music Stopped", Robini's "Crisis Economics” {one of the first major post-crisis books on the subject), Bethany McCLean's "All the Devils are here" (A book that John Authers, former editor-and-chief of the Financial Times, described as the best one volume bock on the crises yet published) and John Auther's "The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How To Prevent Them in the Future". Also good are Schiller's "Irrational Exhuberance" and Reinhart and Rogoff's "This Time Is Different: Eight Centuries of Financial Folly". Even though the last two are not specifically about the 2008 crisis the lessons they contain relating to the historical causes of previous bubbles are extremely relevant. What is really needed, today, is a set of the above books updated to take into account all the research and literature produced over the past some eight years since they were published.
For the knowledgeable on macroeconomics and finance “Firefighting” would be of very little value, especially and shamefully in that it does not incorporate barely anything that has happened, in 8 years, since the publication of the author’s previous books. For that audience this book would rate as a one or, at most, two-star book.
This book is relatively short, at about 130 pages of text. Of the roughly 130 pages of text, nearly all are dedicated to what the three authors had done, and what was happening at the time, rather than why it had happened. If one has already read any of the author's previous books on the subject (Bernanke's “The Courage to Act”, Geithner's “Stress Test: Reflections on Financial Crisis” and Paulson's “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System”) one will know very roughly 2/3 of what is in this book. If one has read any two of these books one would know about 90% and if one has read all three an asymptotic 100%. This is despite the fact that these books were written about 8 years ago. Hence both the strength and weakness of the book. For anyone who has not read any of these books the book provides an excellent summation of all three. For those who have read any one, if not more, there would be little to gain from reading this book.
Very unfortunately, the book provides very little in terms of analytic depth relating to why what happened did happen. The whole of this can be summed up in a single paragraph in the conclusion, on page 112. That is as follows:
“...the basic problems were too much risky leverage, too much runnable short-term financing, and the migration of too much risk to shadow banks where regulation was negligible and the Fed's emergency safety net was inaccessible. There were also too many major firms that were toa big and interconnected to fail without threatening the stability of the system, and the explosion of opaque mortgage-backed derivatives had turned the health of the of the housing market into a potential vector for panic. Meanwhile, America’s regulatory bureaucracy was fragmented and outdated, with no one responsible for monitoring and addressing systemic risks”.
All this was very obvious even 1-2 years after the crisis, never mind an entire decade after the event. And this is the great failure of the book. It does not take advantage of practically any of the very extensive research and literature that has covered the topic over the past some 8 years. Many of the little discussed, but important, factors that caused the crisis are not even mentioned, never mind seriously examined. For example, that much of the reserves of the insurance companies insuring many financial instruments were based on assets that were not solid in many cases (i.e., not much more solid than what they were intended to insure, such as CDOs being used as the basis of backing CDOs). That the ratings agencies did a very poor {and biased) job at rating sub-AAA rated instruments as AAA. In the late 1970s only a tiny share of private sector debt was rated as AAA by the ratings agencies. By the time of the crisis that had ballooned to a significant portion of debt. That the accounting firms and government regulators responsible for auditing and monitoring housing debt, especially sub-prime housing, were doing a very poor job at (i.e. witness the relatively large proportion of NINJA [and other fraudulent] loans in the mortgage market at the time). Etc., Etc, Etc. There has been extensive empirical research an these topics since the author's three books were originally published yet this is utterly ignored in this book.
Naturally, considering the fact that the coverage of “why” is weak, it inevitably follows that the policy recommendations made by the three authors is also quite weak (and self-evident even some 8 or so years ago, never mind today). Also weak, in that it is so self-evident, are the author's analysis of the economy in terms of its ability to fend off a future similar crisis. The authors point out that the currently prevailing low interest rates, high government debt and the results of the previous decade's high level of “quantitative easing” have greatly reduced the ammunition available to fight any future crisis. This, however, is not exactly a revelation even to someone who has only had one or two macroeconomics classes. Plus they also leave unmentioned, as a factor further weakening the economy's ability to bounce back from any blows, the extremely important facts that there has been little debt deleveraging since the crisis and private sector debt (in particular corporate) is near its 2007-2008 levels.
In short, this book is really of value only to laymen who have not really read much on the topic. It would be of value to those who have not read any of the three previous books on the subject. However, even for that audience, there are other books that do a much better job at analyzing and discussing the crisis that were published 1-3 years after the crisis (i.e.,., at around the same time as Paulson, Bernanke and Geithner's original books were published). Examples include Alan Blinder's "After the Music Stopped", Robini's "Crisis Economics” {one of the first major post-crisis books on the subject), Bethany McCLean's "All the Devils are here" (A book that John Authers, former editor-and-chief of the Financial Times, described as the best one volume bock on the crises yet published) and John Auther's "The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How To Prevent Them in the Future". Also good are Schiller's "Irrational Exhuberance" and Reinhart and Rogoff's "This Time Is Different: Eight Centuries of Financial Folly". Even though the last two are not specifically about the 2008 crisis the lessons they contain relating to the historical causes of previous bubbles are extremely relevant. What is really needed, today, is a set of the above books updated to take into account all the research and literature produced over the past some eight years since they were published.
For the knowledgeable on macroeconomics and finance “Firefighting” would be of very little value, especially and shamefully in that it does not incorporate barely anything that has happened, in 8 years, since the publication of the author’s previous books. For that audience this book would rate as a one or, at most, two-star book.
January 18, 2020
not a review, raw notes (in progress)
Ch 1: Roots of the crisis
- immediate causes: subprime meltdown; borrwing frenzy; financial firms taking on too much risky leverage (runnable short-term debt); risk migration to shadow banking system outside of traditional banking channels; inadequate regulation & supervisory oversight. All of these played an indepedent role, but interactions between them created a uniquely dangerous panic
- U.S. mortgage market: subprime lending to lower-income households, NINJA loans, liar loans, exploding ARM, "originate-to-distribute" model, securitization boom (underpinning too much of modern finance, making the health of the entire financial system dependent on perceived condition of mortgage market),
- shadow banking: operated outside commercial banking system, no supervisory oversight or safety net provided for institituins w commercial bank charters; investment banks (Bear Sterns, Lehman), mortgage giants (Fannie, Freddie), insurance companies (AIG), corporate finance arms (GE Capital)
- no single regulator responsible for safeguarding or monitoring safety and soundness of the system as a whole
- capital rules were applied too narrowly; outside the reach of the regulatory system
Ch 2: The First Flames (Aug 2007 - March 2008)
- BNP Paribas announced a freeze on withdrawals from three funds that held securities backed by US suprime mortgages (--> liquidity crunch)
- "stigma problem" - reluctancy for institutions to take govt help even when it's essential for maintaining stability of the broader system
- "Bernanke put" - sending a msg of unlimited central bank support for troubled markets
- Countrywide - originated 1/5 mortgages in 2006; overreliance on lower quality mortgages
- Merrill Lync & Citigroup - enormous writedowns; toxicity of super senior CDOs
- Fed initial efforts to boost liquidity:
- swap lines: Fed making dollars available to foreign central banks;
- cut rates faster than any other central bank
Ch 3: The Fire Spreads (March 2008 - Sept 2008)
- Bear Sterns - creditors stopped rolling over to commercial paper, repo lenders demanding more collateral, hedge funds closing their brokerage accounts
- neither the Fed nor Treasury oversaw Bear (regulated by SEC, which is not focused on safety and soundness)
- not forced to comply w capital requirements and other rules for commercial banks; extremely over leveraged
- extremely intertwined w the broader financial system; 5000 trading counterparties and 750k open derivatives contracts
- Fed couldn't lend to an investment bank like Bear; would have to invoke 13(3) in "unusual and exigent circumstances"
- JPMC emerged as only potential saver, under condition that Fed would take some of the risk of their mortgage assets
- federal got had no orderly resolution regime for nonbanks
- Fannie and Freddie - held or gauranteed $5T worth of mortgage debt; backed 3 of every 4 new home laons
- dominated the secondary mortgage market
- July 15 - Paulson & Bernanke appear before Senate, asking for support to keep mortgage credit flowing, preventing further deteroriation of the housing market
- new legilation gave treasury and fed a chance to look under the hood, eventually determining that both firms were functionally insolvent
- Sept 5 - CEOs were told that the govt was seizing control of their companies; treasury to inject $100b into each. At this point this was the most aggressive federal intervention in financial markets since the Great Depression
- did not quell markets at all; they concluded that if the govt was worried enough to take these extraordinary measures, the situation was actually probably worse than it appeared
Ch 4: The Inferno (Sept 2008 - Oct 2008)
- Lehman - loosely regulated , heavily overleveraged, deeply interconnected nonbank; way too may exposure to real estate market and too much runnable short-term financing
- many people think Lehman was let to fail on purpose, but this was not the case. Ultimately:
- (1) Lehman didn't have a buyer that was willing to stand behind its obligations (a la JPMC w Bear);
- (2) no congressional authority for govt to stand behind Lehman like with Fannie & Freddie;
- (3) Lehman did not have enough solid collateral that the Fed could lend against; no practical power to save Lehman without a private buyer . Not ability to inject capital, guarantee it's liabilities, buy its assets, or wind it down in an orderly fashion = nighmare scenario
- if Lehman was a commercial bank the FDIC could've just seized it, but no one in the govt had the power to do that for a nonbank. BofA and Barclays both took a look but did not want to buy it (BofA was buying Merrill; British regulators skeptical, didn't want British taxpayers on the hook for Lehmans problems
- "A lender of last resort can help reduce the risk that viable companies go down because of temporary liquidity problems, but it can't make fundamentally nonviable companies viable"
- AIG: global insurer even bigger and more dangerous than Lehman; similarly fell through the cracks of the broken regulatory system
- $2.7T worth of derivatives contracts (credit default swaps).
- counterparties began demanding huge amts of addtl collateral
- the Fed had authority to lend against good collateral, which it still had because the problems were concentrated in the Financial Products divisionl; offered an $85b take it or leave it credit line in exchange for 79.9% of the firm
- AIG had solid collateral, enough to secure the funding it needed to stay in business, which Lehman didn't
- eventually AIG would pay back the money with interest and the govt would make a $23b profit
Ch 5: Dousing the Fire (Oct 2008 - May 2009)
-
Ch 1: Roots of the crisis
- immediate causes: subprime meltdown; borrwing frenzy; financial firms taking on too much risky leverage (runnable short-term debt); risk migration to shadow banking system outside of traditional banking channels; inadequate regulation & supervisory oversight. All of these played an indepedent role, but interactions between them created a uniquely dangerous panic
- U.S. mortgage market: subprime lending to lower-income households, NINJA loans, liar loans, exploding ARM, "originate-to-distribute" model, securitization boom (underpinning too much of modern finance, making the health of the entire financial system dependent on perceived condition of mortgage market),
- shadow banking: operated outside commercial banking system, no supervisory oversight or safety net provided for institituins w commercial bank charters; investment banks (Bear Sterns, Lehman), mortgage giants (Fannie, Freddie), insurance companies (AIG), corporate finance arms (GE Capital)
- no single regulator responsible for safeguarding or monitoring safety and soundness of the system as a whole
- capital rules were applied too narrowly; outside the reach of the regulatory system
Ch 2: The First Flames (Aug 2007 - March 2008)
- BNP Paribas announced a freeze on withdrawals from three funds that held securities backed by US suprime mortgages (--> liquidity crunch)
- "stigma problem" - reluctancy for institutions to take govt help even when it's essential for maintaining stability of the broader system
- "Bernanke put" - sending a msg of unlimited central bank support for troubled markets
- Countrywide - originated 1/5 mortgages in 2006; overreliance on lower quality mortgages
- Merrill Lync & Citigroup - enormous writedowns; toxicity of super senior CDOs
- Fed initial efforts to boost liquidity:
- swap lines: Fed making dollars available to foreign central banks;
- cut rates faster than any other central bank
Ch 3: The Fire Spreads (March 2008 - Sept 2008)
- Bear Sterns - creditors stopped rolling over to commercial paper, repo lenders demanding more collateral, hedge funds closing their brokerage accounts
- neither the Fed nor Treasury oversaw Bear (regulated by SEC, which is not focused on safety and soundness)
- not forced to comply w capital requirements and other rules for commercial banks; extremely over leveraged
- extremely intertwined w the broader financial system; 5000 trading counterparties and 750k open derivatives contracts
- Fed couldn't lend to an investment bank like Bear; would have to invoke 13(3) in "unusual and exigent circumstances"
- JPMC emerged as only potential saver, under condition that Fed would take some of the risk of their mortgage assets
- federal got had no orderly resolution regime for nonbanks
- Fannie and Freddie - held or gauranteed $5T worth of mortgage debt; backed 3 of every 4 new home laons
- dominated the secondary mortgage market
- July 15 - Paulson & Bernanke appear before Senate, asking for support to keep mortgage credit flowing, preventing further deteroriation of the housing market
- new legilation gave treasury and fed a chance to look under the hood, eventually determining that both firms were functionally insolvent
- Sept 5 - CEOs were told that the govt was seizing control of their companies; treasury to inject $100b into each. At this point this was the most aggressive federal intervention in financial markets since the Great Depression
- did not quell markets at all; they concluded that if the govt was worried enough to take these extraordinary measures, the situation was actually probably worse than it appeared
Ch 4: The Inferno (Sept 2008 - Oct 2008)
- Lehman - loosely regulated , heavily overleveraged, deeply interconnected nonbank; way too may exposure to real estate market and too much runnable short-term financing
- many people think Lehman was let to fail on purpose, but this was not the case. Ultimately:
- (1) Lehman didn't have a buyer that was willing to stand behind its obligations (a la JPMC w Bear);
- (2) no congressional authority for govt to stand behind Lehman like with Fannie & Freddie;
- (3) Lehman did not have enough solid collateral that the Fed could lend against; no practical power to save Lehman without a private buyer . Not ability to inject capital, guarantee it's liabilities, buy its assets, or wind it down in an orderly fashion = nighmare scenario
- if Lehman was a commercial bank the FDIC could've just seized it, but no one in the govt had the power to do that for a nonbank. BofA and Barclays both took a look but did not want to buy it (BofA was buying Merrill; British regulators skeptical, didn't want British taxpayers on the hook for Lehmans problems
- "A lender of last resort can help reduce the risk that viable companies go down because of temporary liquidity problems, but it can't make fundamentally nonviable companies viable"
- AIG: global insurer even bigger and more dangerous than Lehman; similarly fell through the cracks of the broken regulatory system
- $2.7T worth of derivatives contracts (credit default swaps).
- counterparties began demanding huge amts of addtl collateral
- the Fed had authority to lend against good collateral, which it still had because the problems were concentrated in the Financial Products divisionl; offered an $85b take it or leave it credit line in exchange for 79.9% of the firm
- AIG had solid collateral, enough to secure the funding it needed to stay in business, which Lehman didn't
- eventually AIG would pay back the money with interest and the govt would make a $23b profit
Ch 5: Dousing the Fire (Oct 2008 - May 2009)
-
May 27, 2019
Bernanke, Paulson, and Geithner explain clearly why it is important for the Federal Reserve and the Treasury to be prepared to respond proactively and reactively to financial crisis. Many people disagreed with the decisions the authors took and did not take between 2007 and 2009. If you are not convinced by their arguments for ensuring that the Federal Reserve should independently respond to financial crises, this book should serve as basis for finding points to refute.
July 6, 2019
The authors were the three lead regulators (Fed, Treasury, NY Fed) at the time of the Great Recession. This is a succinct chronology of the crisis, with the litany of actions they took to stop the fire and restore the economy. They argue that the bailouts were necessary and probably that is true given the scope and speed of the panic and crisis. Perhaps so, but their prescription for the future is powers to do more of the same, rather than break up the big banks or let them fail.
September 5, 2020
I gave this 2 stars because the book felt a little too one-sided. Reading this book felt like reading a list of excuses given by the authors of why they couldnt perform their jobs properly. It felt like they were saying they did the best possible job given the circumstances and how government was structured. They then went on to laud their own policy measures (quantitative easing). Overall, it just felt like a desperate attempt to salvage their already beaten reputations.
January 2, 2021
This is just a list of events that happened, no insights. If you already know what happened, you won't learn much
September 7, 2019
... firefighting connotes crisis but what it also entails is a noble endeavor; battling a calamity that is raging but can be contained by a special force skilled in the art of fire.
Firefighting, the Financial Crisis and its Lessons, is coauthored by those who were entangled, Ben Bernanke, former chairman of the Federal Reserve from 2006 - 2014, Timothy Geithner, former president of the Federal Reserve Bank of NY, 2009 - 2013, and Henry (Hank) Paulson, former secretary of the Treasury, 2006 - 2009, all of whom are pursuing distinguished endeavors but I felt it important to include their roles at the time of the crisis.
And much of what they want you to know is that there was little to no hand wringing ... and when they could not act, it was due to some archaic process that did in fact tie their hands.
... so why did it happen? Was it really a classic financial panic? A run in the financial system triggered by a crisis in confidence in mortgages? Or, was it human nature telling us that perhaps there's more than an element of greed involved?
Firefighting is more a reflection; in a somewhat textbook form, a way of looking back 10 years: what went wrong, how it could be stopped (it can't), what could occur in the future (the same), what we can expect (more attempts at regulation and government controls - problematic) and what to do in the meantime (find other ways to sell dreams but This Time limit the damage).
Attached is a chart book; an added bonus that parses the antecedents of the crisis, demonstrates its arc and outlines our strategy in dousing the flames - or rather implosion.
Although interesting; especially the perception of bailouts which depends, on whom one asks, whether they occurred or not; or was there something else brewing, underlying, that which cannot be legislated or contained - our unwavering propensity to follow the herd.
Firefighting, the Financial Crisis and its Lessons, is coauthored by those who were entangled, Ben Bernanke, former chairman of the Federal Reserve from 2006 - 2014, Timothy Geithner, former president of the Federal Reserve Bank of NY, 2009 - 2013, and Henry (Hank) Paulson, former secretary of the Treasury, 2006 - 2009, all of whom are pursuing distinguished endeavors but I felt it important to include their roles at the time of the crisis.
And much of what they want you to know is that there was little to no hand wringing ... and when they could not act, it was due to some archaic process that did in fact tie their hands.
... so why did it happen? Was it really a classic financial panic? A run in the financial system triggered by a crisis in confidence in mortgages? Or, was it human nature telling us that perhaps there's more than an element of greed involved?
Firefighting is more a reflection; in a somewhat textbook form, a way of looking back 10 years: what went wrong, how it could be stopped (it can't), what could occur in the future (the same), what we can expect (more attempts at regulation and government controls - problematic) and what to do in the meantime (find other ways to sell dreams but This Time limit the damage).
Attached is a chart book; an added bonus that parses the antecedents of the crisis, demonstrates its arc and outlines our strategy in dousing the flames - or rather implosion.
Although interesting; especially the perception of bailouts which depends, on whom one asks, whether they occurred or not; or was there something else brewing, underlying, that which cannot be legislated or contained - our unwavering propensity to follow the herd.
October 10, 2020
A short book written by Ben Bernanke, Tim Geithner and Henry Paulson. It’s an honest book about what happened with the 2008 crisis and how the US gov handled it and why. I thought it’s a good book to read and understand what had happened.
1. All crisis started with excessive borrowing, leverage and risk-taking. Although the book didn’t write much about how the regulators let these sub-prime borrowing happen under its watch for 4-5 years.
2. The real problem is “bank-run”, the fear that feeds on itself. It was indeed scary, from smaller institutions to Bear to Lehman, to AIG, and potentially to Citi and MS. It is a slippery slope, and no wonder why the gov tried everything to restore confidence.
3. The US gov cannot do many things, even in crisis. And the congress has its different opinions on how, who to rescue and by how much. This creates more fear. Ben, Tim and Hank had to fight for more power to stop the crisis. This is by design of the system, but also makes it vulnerable in any crisis.
4. The free market belief is in doubt. The US government had to intervene big time in crisis, and could not let free market runs its course. Sure, you can come up with every reason why gov has to intervene. But if the US does this every time in crisis, why it accuses other countries’ government for intervening their markets? Is absolute free market really exist? Should the government plays a role anyway in every country? If that’s the case, why the US can do it, others can’t?
5. The trio was not confident that the next crisis will be handled better, particularly because they still feel these government agencies do not have enough power and authority to deal with a crisis. The next crisis will come in a different form (COVID-19?), but it looks like it’ll initially be chaos and then fix. As the trio said in the book, you have to have a crisis to push for reform.
1. All crisis started with excessive borrowing, leverage and risk-taking. Although the book didn’t write much about how the regulators let these sub-prime borrowing happen under its watch for 4-5 years.
2. The real problem is “bank-run”, the fear that feeds on itself. It was indeed scary, from smaller institutions to Bear to Lehman, to AIG, and potentially to Citi and MS. It is a slippery slope, and no wonder why the gov tried everything to restore confidence.
3. The US gov cannot do many things, even in crisis. And the congress has its different opinions on how, who to rescue and by how much. This creates more fear. Ben, Tim and Hank had to fight for more power to stop the crisis. This is by design of the system, but also makes it vulnerable in any crisis.
4. The free market belief is in doubt. The US government had to intervene big time in crisis, and could not let free market runs its course. Sure, you can come up with every reason why gov has to intervene. But if the US does this every time in crisis, why it accuses other countries’ government for intervening their markets? Is absolute free market really exist? Should the government plays a role anyway in every country? If that’s the case, why the US can do it, others can’t?
5. The trio was not confident that the next crisis will be handled better, particularly because they still feel these government agencies do not have enough power and authority to deal with a crisis. The next crisis will come in a different form (COVID-19?), but it looks like it’ll initially be chaos and then fix. As the trio said in the book, you have to have a crisis to push for reform.
April 11, 2022
Less self-aggrandizing than I expected, but definitely still present. Essentially, Bernanke, Geithner, and Paulson spend 240 pages claiming the only approach to keep the recession from being worse than it was, was to continually increase Fed power and continuously introduce novel mechanisms as a way of “bolstering confidence”; ultimately the outcome was saving big banks of Wall Street and companies like AIG while not actually preventing much of anything, falling back on the claim that they "staved off something much worse." Problem is, they also thought with each new measure it would solve the problem, but it didn't, and now we're in a pretty bad situation. It seems instead that their primary defending argument, "preventing much worse conditions", is likely more accurately phrased as they postponed the “worse” condition, which kind of destroys their entire argument.
They also seem to avoid taking any ownership of the crisis, i.e. deflecting blame of Lehman Brothers collapse on US commercial bank and UK regulators, or by stating at the beginning and end of the book that the cause of the crisis well preceded the actual meltdown (too much risky leverage, too much runnable short term financing, migration of risk to shadow banks, and too many major firms that were too big/interconnected to fail). The funny thing is it seems that their efforts during the crisis resulted in the already too big to fail banks to become even bigger and less capable of being allowed to fail.
They also offer a weak reasoning as to why they didn't penalize these companies that got us all in this mess in the first place (and instead bailed most of them out). They claim that extracting a penalty in the midst of a crisis would have been foolish, and only made things worse (there it is again), but they don't really address how after the crisis, nothing happened...
They also seem to avoid taking any ownership of the crisis, i.e. deflecting blame of Lehman Brothers collapse on US commercial bank and UK regulators, or by stating at the beginning and end of the book that the cause of the crisis well preceded the actual meltdown (too much risky leverage, too much runnable short term financing, migration of risk to shadow banks, and too many major firms that were too big/interconnected to fail). The funny thing is it seems that their efforts during the crisis resulted in the already too big to fail banks to become even bigger and less capable of being allowed to fail.
They also offer a weak reasoning as to why they didn't penalize these companies that got us all in this mess in the first place (and instead bailed most of them out). They claim that extracting a penalty in the midst of a crisis would have been foolish, and only made things worse (there it is again), but they don't really address how after the crisis, nothing happened...
November 9, 2025
Pembelaan Bernanke (Chairman The Fed 2006-14), Geithner (Menkeu 2009-13), dan Paulson (Menkeu 2006-09) saat AS dilanda krisis keuangan tahun 2008.
Membaca buku ini memang harus sambil membaca kritiknya juga. Bukan soal kualitas penulisan, namun kritik terhadap kebijakan dan diskresi yang dilakukan ketiganya saat krisis.
Dari isinya, terlihat para penulis mencoba menarasikan bagaimana kebijakan yg mereka ambil berhasil menyelamatkan AS dr risiko Depresi Hebat Kedua (seperti pemadam, firefighting). Namun, meski dianggap berhasil, langkah yang dilakukan cenderung mengabaikan biaya sosial dan politik jangka panjang dari bailout, termasuk peran mereka sendiri dalam budaya politik-ekonomi yang menciptakan kerentanan awal sebelum krisis. Trio penulis juga memberikan penjelasan langkah-langkah yang bisa dilaksanakan di masa depan, belajar dari kesalahan di masa kini.
Pilihan antara diskresi penuh (demi kecepatan dan efektivitas dalam menanggapi krisis) atau tuntutan publik untuk transparansi, akuntabilitas demokratis, dan penghapusan moral hazard akan menentukan seberapa siap sistem global menghadapi krisis berikutnya. Penulis secara terbuka memilih sisi diskresi.
Bukunya tipis tapi susah dibaca, banyak istilah ekonomi yang sulit saya mengerti.
Membaca buku ini memang harus sambil membaca kritiknya juga. Bukan soal kualitas penulisan, namun kritik terhadap kebijakan dan diskresi yang dilakukan ketiganya saat krisis.
Dari isinya, terlihat para penulis mencoba menarasikan bagaimana kebijakan yg mereka ambil berhasil menyelamatkan AS dr risiko Depresi Hebat Kedua (seperti pemadam, firefighting). Namun, meski dianggap berhasil, langkah yang dilakukan cenderung mengabaikan biaya sosial dan politik jangka panjang dari bailout, termasuk peran mereka sendiri dalam budaya politik-ekonomi yang menciptakan kerentanan awal sebelum krisis. Trio penulis juga memberikan penjelasan langkah-langkah yang bisa dilaksanakan di masa depan, belajar dari kesalahan di masa kini.
Pilihan antara diskresi penuh (demi kecepatan dan efektivitas dalam menanggapi krisis) atau tuntutan publik untuk transparansi, akuntabilitas demokratis, dan penghapusan moral hazard akan menentukan seberapa siap sistem global menghadapi krisis berikutnya. Penulis secara terbuka memilih sisi diskresi.
Bukunya tipis tapi susah dibaca, banyak istilah ekonomi yang sulit saya mengerti.
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