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In Fed We Trust: Ben Bernanke's War on the Great Panic
“Whatever it takes”
That was Federal Reserve Chairman Ben Bernanke’s vow as the worst financial panic in more than fifty years gripped the world and he struggled to avoid the once unthinkable: a repeat of the Great Depression. Brilliant but temperamentally cautious, Bernanke researched and wrote about the causes of the Depression during his career as an academic. Then when thrust into a role as one of the most important people in the world, he was compelled to boldness by circumstances he never anticipated.
The president of the United States can respond instantly to a missile attack with America’s military might, but he cannot respond to a financial crisis with real money unless Congress acts. The Fed chairman can. Bernanke did. Under his leadership the Fed spearheaded the biggest government intervention in more than half a century and effectively became the fourth branch of government, with no direct accountability to the nation’s voters.
Believing that the economic catastrophe of the 1930s was largely the fault of a sluggish and wrongheaded Federal Reserve, Bernanke was determined not to repeat that epic mistake. In this penetrating look inside the most powerful economic institution in the world, David Wessel illuminates its opaque and undemocratic inner workings, while revealing how the Bernanke Fed led the desperate effort to prevent the world’s financial engine from grinding to a halt.
In piecing together the fullest, most authoritative, and alarming picture yet of this decisive moment in our nation’s history, In Fed We Trust answers the most critical questions. Among them:
• What did Bernanke and his team at the Fed know–and what took them by surprise? Which of their actions stretched–or even ripped through–the Fed’s legal authority? Which chilling numbers and indicators made them feel they had no choice?
• What were they thinking at pivotal moments during the race to sell Bear Stearns, the unsuccessful quest to save Lehman Brothers, and the virtual nationalization of AIG, Fannie Mae, and Freddie Mac? What were they saying to one another when, as Bernanke put it to Wessel: “We came very close to Depression 2.0”?
• How well did Bernanke, former treasury secretary Hank Paulson, and then New York Fed president Tim Geithner perform under intense pressure?
• How did the crisis prompt a reappraisal of the once-impregnable reputation of Alan Greenspan?
In Fed We Trust is a breathtaking and singularly perceptive look at a historic episode in American and global economic history.
That was Federal Reserve Chairman Ben Bernanke’s vow as the worst financial panic in more than fifty years gripped the world and he struggled to avoid the once unthinkable: a repeat of the Great Depression. Brilliant but temperamentally cautious, Bernanke researched and wrote about the causes of the Depression during his career as an academic. Then when thrust into a role as one of the most important people in the world, he was compelled to boldness by circumstances he never anticipated.
The president of the United States can respond instantly to a missile attack with America’s military might, but he cannot respond to a financial crisis with real money unless Congress acts. The Fed chairman can. Bernanke did. Under his leadership the Fed spearheaded the biggest government intervention in more than half a century and effectively became the fourth branch of government, with no direct accountability to the nation’s voters.
Believing that the economic catastrophe of the 1930s was largely the fault of a sluggish and wrongheaded Federal Reserve, Bernanke was determined not to repeat that epic mistake. In this penetrating look inside the most powerful economic institution in the world, David Wessel illuminates its opaque and undemocratic inner workings, while revealing how the Bernanke Fed led the desperate effort to prevent the world’s financial engine from grinding to a halt.
In piecing together the fullest, most authoritative, and alarming picture yet of this decisive moment in our nation’s history, In Fed We Trust answers the most critical questions. Among them:
• What did Bernanke and his team at the Fed know–and what took them by surprise? Which of their actions stretched–or even ripped through–the Fed’s legal authority? Which chilling numbers and indicators made them feel they had no choice?
• What were they thinking at pivotal moments during the race to sell Bear Stearns, the unsuccessful quest to save Lehman Brothers, and the virtual nationalization of AIG, Fannie Mae, and Freddie Mac? What were they saying to one another when, as Bernanke put it to Wessel: “We came very close to Depression 2.0”?
• How well did Bernanke, former treasury secretary Hank Paulson, and then New York Fed president Tim Geithner perform under intense pressure?
• How did the crisis prompt a reappraisal of the once-impregnable reputation of Alan Greenspan?
In Fed We Trust is a breathtaking and singularly perceptive look at a historic episode in American and global economic history.
336 pages, Hardcover
First published January 1, 2009
71 people are currently reading
2060 people want to read
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January 16, 2011
The title says it all. Wessel absolutely adores Ben Bernanke, raving about his genius and character. Wessel is an idiot. He spends countless pages talking about how this boy from rural South Carolina is overwhelmingly brilliant. Neat? If you're looking for something other than a 300-page fanboy book about how fantastic bald, bearded Ben is, look elsewhere.
Those seeking understanding of WHY the Fed bailed out Goldman, Merrill, AIG, Fannie, Freddie, and others while letting Lehman, WaMu, and others splatter will not find much help here. Nor will they find an objective weighing of the pros and cons of the Fed's actions. Nor will they find potential alternatives to what many consider disastrous policies. Nor will they find any useful or thought-provoking insights into the financial crisis. Instead, Wessel simply ignores or asserts answers to key questions. Namely, should the Fed have done all this bailing out, did we really need TARP, couldn't the market have corrected itself, shouldn't we get the government out of housing, what incentives do the Fed's actions now have on future behavior, won't the next crisis just be that much worse?
Wessel briefly mentions that the problem was "clogged credit channels" and claims ad nauseam that Ben was willing to do "whatever it takes." Without exaggeration, this is the theme running through this book, and it is repeated maybe two dozen times. It's not clear what that phrase even means. Whatever it takes to do what? I guess to prevent another Great Depression. Notice how this doesn't really answer any fundamental questions at all. But it must be useful to have one response for every single question that arises. Hey Wessel, should we let a private, unelected individual or small group of individuals counterfeit $1.5 trillion? "Whatever it takes." Should we let them arbitrarily save some private companies by handing them taxpayer dollars even though they used to work closely with those companies and have many friends and acquaintances there? "Whatever it takes." Should we let them continue to print trillions of dollars despite the fact that inflation MUST result? "Whatever it takes." When I get a hangnail on my pinky, should I chop off my arm? "Whatever it takes."
Propping up or "bailing out," as they say, unprofitable companies to "unclog the credit markets" is antithetical to the spirit and purpose of capitalism. It is crony capitalism and fully deserving of people's ire. As a result of these brilliant policies to do "whatever it takes," we still have unemployment hovering around 10% years later, great regulatory uncertainty, Fannie and Freddie with their hands in the majority of secondary market mortgage sales, huge moral hazard practically institutionalized for the largest entities, and trillions of newly printed dollars that confiscate wealth from actual producers.
Ben and his fanboy fail to realize--or don't care--that uncertainty itself is a huge problem, not to mention inflating away dollars and thieving from savers. The Fed's "balance sheet" (an interesting use of the concept since it's fun to think about where the Fed's "assets" come from) went from $800 billion around 2007 to over $2.2 trillion in 2010. To be absolutely clear, the Fed doesn't create anything consumable. It merely creates money to make some people whole after they made horrible economic decisions. But, hey, Ben is supposed to be like really, really smart. "Whatever it takes."
The main problem with Wessel and other supporters of the Fed is that they posit a counterfactual that is impossible to refute. They say: Ben had to do "whatever it takes" to prevent the next Great Depression because it would have been even worse without his interference. This argument can always be used and is unanswerable. Unemployment is at 7%? Would have been worse. 8% or 10%? Would have been worse. The Dow drops 4%? Would have been worse. No matter how bad it gets, one can always just assert that it would have been even worse but for the Fed's actions.
The positions of Jim Rogers, Ron Paul, the Austrians, and anybody else who calls for the abolition of the Fed and sound money tied to a commodity or set to increase at a predictable, steady rate every year make much more intuitive sense than this nonsense about "whatever it takes." Sure, there would have been a recession after the housing bubble (which the Fed directly helped create through Alan Greenspan's low interest rate policy for years after 9/11 and the "Greenspan Put"). The recession may have even been severe and deep with many failures. But, as the history of this country has shown, recessions are brief without government interference. Companies that misallocate scarce resources will be punished, and those misused resources will find their way into more capable hands. This is a natural, healthy, and required part of capitalism. A bank failure is not itself a bad thing.
Clogged credit markets my ass. Credit is a good just like any other. Without government interference, the markets will provide for it at a mutually agreeable price. The huge price control interfering with this free exchange? The federal funds rate set by the Federal Reserve. Time to get rid of the Fed. The recession would be much quicker and less painful had the Fed not existed--a lot of people have said so, and some of them are like really, really smart.
Those seeking understanding of WHY the Fed bailed out Goldman, Merrill, AIG, Fannie, Freddie, and others while letting Lehman, WaMu, and others splatter will not find much help here. Nor will they find an objective weighing of the pros and cons of the Fed's actions. Nor will they find potential alternatives to what many consider disastrous policies. Nor will they find any useful or thought-provoking insights into the financial crisis. Instead, Wessel simply ignores or asserts answers to key questions. Namely, should the Fed have done all this bailing out, did we really need TARP, couldn't the market have corrected itself, shouldn't we get the government out of housing, what incentives do the Fed's actions now have on future behavior, won't the next crisis just be that much worse?
Wessel briefly mentions that the problem was "clogged credit channels" and claims ad nauseam that Ben was willing to do "whatever it takes." Without exaggeration, this is the theme running through this book, and it is repeated maybe two dozen times. It's not clear what that phrase even means. Whatever it takes to do what? I guess to prevent another Great Depression. Notice how this doesn't really answer any fundamental questions at all. But it must be useful to have one response for every single question that arises. Hey Wessel, should we let a private, unelected individual or small group of individuals counterfeit $1.5 trillion? "Whatever it takes." Should we let them arbitrarily save some private companies by handing them taxpayer dollars even though they used to work closely with those companies and have many friends and acquaintances there? "Whatever it takes." Should we let them continue to print trillions of dollars despite the fact that inflation MUST result? "Whatever it takes." When I get a hangnail on my pinky, should I chop off my arm? "Whatever it takes."
Propping up or "bailing out," as they say, unprofitable companies to "unclog the credit markets" is antithetical to the spirit and purpose of capitalism. It is crony capitalism and fully deserving of people's ire. As a result of these brilliant policies to do "whatever it takes," we still have unemployment hovering around 10% years later, great regulatory uncertainty, Fannie and Freddie with their hands in the majority of secondary market mortgage sales, huge moral hazard practically institutionalized for the largest entities, and trillions of newly printed dollars that confiscate wealth from actual producers.
Ben and his fanboy fail to realize--or don't care--that uncertainty itself is a huge problem, not to mention inflating away dollars and thieving from savers. The Fed's "balance sheet" (an interesting use of the concept since it's fun to think about where the Fed's "assets" come from) went from $800 billion around 2007 to over $2.2 trillion in 2010. To be absolutely clear, the Fed doesn't create anything consumable. It merely creates money to make some people whole after they made horrible economic decisions. But, hey, Ben is supposed to be like really, really smart. "Whatever it takes."
The main problem with Wessel and other supporters of the Fed is that they posit a counterfactual that is impossible to refute. They say: Ben had to do "whatever it takes" to prevent the next Great Depression because it would have been even worse without his interference. This argument can always be used and is unanswerable. Unemployment is at 7%? Would have been worse. 8% or 10%? Would have been worse. The Dow drops 4%? Would have been worse. No matter how bad it gets, one can always just assert that it would have been even worse but for the Fed's actions.
The positions of Jim Rogers, Ron Paul, the Austrians, and anybody else who calls for the abolition of the Fed and sound money tied to a commodity or set to increase at a predictable, steady rate every year make much more intuitive sense than this nonsense about "whatever it takes." Sure, there would have been a recession after the housing bubble (which the Fed directly helped create through Alan Greenspan's low interest rate policy for years after 9/11 and the "Greenspan Put"). The recession may have even been severe and deep with many failures. But, as the history of this country has shown, recessions are brief without government interference. Companies that misallocate scarce resources will be punished, and those misused resources will find their way into more capable hands. This is a natural, healthy, and required part of capitalism. A bank failure is not itself a bad thing.
Clogged credit markets my ass. Credit is a good just like any other. Without government interference, the markets will provide for it at a mutually agreeable price. The huge price control interfering with this free exchange? The federal funds rate set by the Federal Reserve. Time to get rid of the Fed. The recession would be much quicker and less painful had the Fed not existed--a lot of people have said so, and some of them are like really, really smart.
April 25, 2021
David Wessel is a keen and disinterested reporter of the workings of the financial markets, the same sort of objective reporting he produced as the economics editor of the Wall Street Journal.
His book about the Federal Reserve Board's (the Fed)efforts to first address the failure of those financial markets as the Great Panic of 2008 was evolving and then, after everyone was agreed that "this sucker's going down" in George W. Bush's famous analysis of the economy on the tip of collapsing, how the Fed addressed the evolving collapse reflects that same dispassionate dissection that helps us understand the implications the Fed's actions had for public policy and Constitutional government.
Wessel could have used the same words he used throughout the book ("whatever it takes") as the book's title, because, whatever mistakes were made by Bernake, Geithner, and Paulson as the Fed and the Treasury sought to lead the nation out of the financial morass it was entering in 2007 and 2008, in the end, following the advice of Walter Bagehot and John Maynard Keynes, those 4 Musketeers (Don Kohn, Tim Geithner, Kevin Warsh, and Bernanke) Plus One (Paulson) forced powers on the Fed that it never before had or employed to staunch what would have resulted in worldwide financial Armageddon to do whatever it took to unclog the credit markets and keep the economy floating, even though badly.
The book concludes as 2010 opens and Wessel confronts the question of how history will judge the efficacy and appropriateness of the dramatic, historic actions the Fed, its traders and emissaries, and close politicians took to push the Fed to assume powers it did not have.
In 2021, as I read this book, it is fair to say that the measures employed in 2008, 2009, and 2010 by the Fed and the Treasury provided the backdrop, the precedent, and the guidance for steering the nation through the Pandemic of 2020 when the economy--not the credit markets this time, but the economy--came to standstill and unemployment hit unimaginable levels. What Bernanke and Paulson did for the banks and third-party financial intermediaries in 2008 was but a light touch of the wand in comparison to the measures the Fed and this time the politicians employed in 2020 to create financial market and economic stability.
In this sense, the Fed's actions proved to be a tremendous success even though we cannot be certain how the debt assumed could destabilize the economy later or whether we have now entered the historic phase where government and its associated entities with broad financial powers will react in each case in the future when markets become dysfunctional.
My opinion is that the Fed and the Treasury had little choice but to do whatever it took. The problems that caused the disruption, in my view, were caused by failures of intellectual, philosophic, and political ideologies that free markets find their own solutions and do not need intervention, philosophies espoused for almost 2 decades by Alan Greenspan and his libertarian cohorts who actually believed that disruptions only happened when governments intervened and even something as disguised as fraud would be dealt with by free-market solutions that first would prevent it and then, if it did occur, root it out by ruthless free-market actions all arising of their own. Ha, ha, ha.
My perspective is that by the time Bear Stearnes was allowed to fail without government help, the credit clearing systems had stopped functioning and credit was not being injected into the world businesses. Corporations with gold star credit histories were not able to sell their IOUs overnight--repos--and there were no takers for bonds or other credit issues except US treasuries. Without credit availability to the best borrowers, there is no functioning economy, and this is what the Fed was faced with. Admittedly, there is something rather distasteful and unwholesome about propping up insurance companies and brokerages with overpaid executives and little regard for what happens on Main Street, but it was these intermediaries that had created the debt bomb of the collateralized debt obligations and other "financial innovations" that lit the fuse.
One aspect of this crisis that Wessel could have addressed was the absence of regulatory controls-the freest of free-market economic philosophy-that might have uncovered and addressed the causes of the 2008 collapse before it occurred, assuming that Alan Greenspan could have been serving his country by being absent from any responsibilities. It should be clear to even observers as prescient as Wessel that the reign of free-market (i.e. "hands off") tactics permitted the diseases that led to the collapse in 2007 and 2008 to fester.
While I personally believe history will award stars to Barack Obama and his government for navigating the nation out of the economic misery of 2008 to 2011 before the economies turned higher, we likely are doomed to repeat the experience if stringent, enforced regulatory controls are not imposed or reimposed.
His book about the Federal Reserve Board's (the Fed)efforts to first address the failure of those financial markets as the Great Panic of 2008 was evolving and then, after everyone was agreed that "this sucker's going down" in George W. Bush's famous analysis of the economy on the tip of collapsing, how the Fed addressed the evolving collapse reflects that same dispassionate dissection that helps us understand the implications the Fed's actions had for public policy and Constitutional government.
Wessel could have used the same words he used throughout the book ("whatever it takes") as the book's title, because, whatever mistakes were made by Bernake, Geithner, and Paulson as the Fed and the Treasury sought to lead the nation out of the financial morass it was entering in 2007 and 2008, in the end, following the advice of Walter Bagehot and John Maynard Keynes, those 4 Musketeers (Don Kohn, Tim Geithner, Kevin Warsh, and Bernanke) Plus One (Paulson) forced powers on the Fed that it never before had or employed to staunch what would have resulted in worldwide financial Armageddon to do whatever it took to unclog the credit markets and keep the economy floating, even though badly.
The book concludes as 2010 opens and Wessel confronts the question of how history will judge the efficacy and appropriateness of the dramatic, historic actions the Fed, its traders and emissaries, and close politicians took to push the Fed to assume powers it did not have.
In 2021, as I read this book, it is fair to say that the measures employed in 2008, 2009, and 2010 by the Fed and the Treasury provided the backdrop, the precedent, and the guidance for steering the nation through the Pandemic of 2020 when the economy--not the credit markets this time, but the economy--came to standstill and unemployment hit unimaginable levels. What Bernanke and Paulson did for the banks and third-party financial intermediaries in 2008 was but a light touch of the wand in comparison to the measures the Fed and this time the politicians employed in 2020 to create financial market and economic stability.
In this sense, the Fed's actions proved to be a tremendous success even though we cannot be certain how the debt assumed could destabilize the economy later or whether we have now entered the historic phase where government and its associated entities with broad financial powers will react in each case in the future when markets become dysfunctional.
My opinion is that the Fed and the Treasury had little choice but to do whatever it took. The problems that caused the disruption, in my view, were caused by failures of intellectual, philosophic, and political ideologies that free markets find their own solutions and do not need intervention, philosophies espoused for almost 2 decades by Alan Greenspan and his libertarian cohorts who actually believed that disruptions only happened when governments intervened and even something as disguised as fraud would be dealt with by free-market solutions that first would prevent it and then, if it did occur, root it out by ruthless free-market actions all arising of their own. Ha, ha, ha.
My perspective is that by the time Bear Stearnes was allowed to fail without government help, the credit clearing systems had stopped functioning and credit was not being injected into the world businesses. Corporations with gold star credit histories were not able to sell their IOUs overnight--repos--and there were no takers for bonds or other credit issues except US treasuries. Without credit availability to the best borrowers, there is no functioning economy, and this is what the Fed was faced with. Admittedly, there is something rather distasteful and unwholesome about propping up insurance companies and brokerages with overpaid executives and little regard for what happens on Main Street, but it was these intermediaries that had created the debt bomb of the collateralized debt obligations and other "financial innovations" that lit the fuse.
One aspect of this crisis that Wessel could have addressed was the absence of regulatory controls-the freest of free-market economic philosophy-that might have uncovered and addressed the causes of the 2008 collapse before it occurred, assuming that Alan Greenspan could have been serving his country by being absent from any responsibilities. It should be clear to even observers as prescient as Wessel that the reign of free-market (i.e. "hands off") tactics permitted the diseases that led to the collapse in 2007 and 2008 to fester.
While I personally believe history will award stars to Barack Obama and his government for navigating the nation out of the economic misery of 2008 to 2011 before the economies turned higher, we likely are doomed to repeat the experience if stringent, enforced regulatory controls are not imposed or reimposed.
April 16, 2017
This is probably the first complete look at the Fed and Treasury's handling of the financial crisis. I've enjoyed getting greater detail on those events which I followed with much interest (and my students are writing a wiki about). I enjoy Wessel's columns and tweets.
Economists like Scott Sumner have been critical of the Fed's lack of aggressiveness in the crisis. While Bernanke thought "outside the box" it hasn't been enough for Dr. Sumner, who I respect a great deal. Wessel's book showed that many of the Fed presidents and FOMC members feared anything unorthodox. They would never relent to an inflation target, would never think of CREATING higher inflation as a way to combat the liquidity trap. I found that really sad, but I am glad to know what the political realities of Fed life are.
My criticism of Wessel's book is that he glosses over Lehman Brothers' collapse, focusing only on how its collapse affected other things. I suppose he left it to other books and the documentaries PBS Frontline did to tell the Lehman story, but glossing over that event and focusing on all the others seems a little bit of an odd choice.
Bernanke lashed out at Fed critics over the weekend. Rightly so, politicians are critical of him and others of doing too much when previously they were concerned that too little was done (ignoring that so much meddling by politicians helped fuel the housing boom in the first place). "You get no kudos for what might have been," Hank Paulson is quoted. Bernanke comes across as a good guy and national hero to Wessel, someone who did whatever it took when given few legal options.
I give the book 3.5 stars out of 5. It's good, but I look forward to more in-depth books on the crisis in the years (decades) to come.
September 13, 2012
Okay, being a supporter of a central banking system, and a supporter of the Federal reserve in particular, I was upset at what seemed to be the haphazard, fly-by-the-seat-of-your-pants decision making the Fed engaged in, along with the Treasury, on the bailouts of all the financial institutions. This book, kind of an apology for Bernanke and the difficult situation he and the Fed were in, explains the hows, whys, and wherefores of the entire mess.
I came away with a much greater understanding of why certain decisions were made, and why they were necessary. There was a "method to the madness" and I came away with greater respect for Bernanke (who I already liked) and even Tim Geithner (who I didn't like at all but at least now have a grudging respect for.)
All in all, this book balances an examination of what needed to be done and what had to be done against what could be done. Wessel gives us a brief biography of the major players as they are introduced, avoiding slipping into survey biographies of the people. Bernanke gets the most treatment of course, as head of the Fed and the primary focus of the book, and it was enlightening to see how his childhood and educational background (and his historical and economic analysis of the Great Depression) shaped all of the decisions he made at the Fed.
His overarching goal was to avoid "Depression 2.0;" and in partnership with Treasury and the cooperation (albeit invisible to the genreal public) of some of the large investment houses and firms, they met with moderate success. Of course there is no way of knowing if the actions of the Fed and Treasury helped or hurt the recovery (or had no effect), but Bernanke did, in my view, avoid Depression 2.0.
Wessel doesn't try to "sell" you on his premise, and the subtitle "Ben Benanke's War on the Great Panic" gives you an idea of his primary focus. The author lays out facts and tells the dramatic story of the cascading events with urgency, placing the reader in the shoes of some of the players. This forces the reader to consider what they might have done differently in that situation.
A good read for the cynic or skeptic of the "Fourth Branch" of government. Walking a mile in Bernanke's shoes through the pages of this book, I emerged more sympathetic to the role and actions of the Fed during the Great Panic.
I came away with a much greater understanding of why certain decisions were made, and why they were necessary. There was a "method to the madness" and I came away with greater respect for Bernanke (who I already liked) and even Tim Geithner (who I didn't like at all but at least now have a grudging respect for.)
All in all, this book balances an examination of what needed to be done and what had to be done against what could be done. Wessel gives us a brief biography of the major players as they are introduced, avoiding slipping into survey biographies of the people. Bernanke gets the most treatment of course, as head of the Fed and the primary focus of the book, and it was enlightening to see how his childhood and educational background (and his historical and economic analysis of the Great Depression) shaped all of the decisions he made at the Fed.
His overarching goal was to avoid "Depression 2.0;" and in partnership with Treasury and the cooperation (albeit invisible to the genreal public) of some of the large investment houses and firms, they met with moderate success. Of course there is no way of knowing if the actions of the Fed and Treasury helped or hurt the recovery (or had no effect), but Bernanke did, in my view, avoid Depression 2.0.
Wessel doesn't try to "sell" you on his premise, and the subtitle "Ben Benanke's War on the Great Panic" gives you an idea of his primary focus. The author lays out facts and tells the dramatic story of the cascading events with urgency, placing the reader in the shoes of some of the players. This forces the reader to consider what they might have done differently in that situation.
A good read for the cynic or skeptic of the "Fourth Branch" of government. Walking a mile in Bernanke's shoes through the pages of this book, I emerged more sympathetic to the role and actions of the Fed during the Great Panic.
June 13, 2018
This book describes the actions of the Federal Reserve under the direction of Ben Bernanke in coordination with Hank Paulson, Secretary of the Treasury, to combat the Great Panic of 2007-2008. In other words, it focuses on the perspective of government officials: what decisions they made to cope with the crisis and why, what they were thinking.
While the book is about the 2007 panic, it starts out describing the 1907 panic and how John Pierpont Morgan intervened to stabilize the financial markets. At first, people were grateful for his efforts but later found themselves a bit uneasy that one man could wield that much power. In like manner, Ben Bernanke and the Federal Reserve filled the role of market stabilizer in the 2007 panic. Business and political leaders were grateful for the efforts, but the political leaders found themselves shocked at the power wielded by the Federal Reserve, with the central bank functioning as a de facto fourth branch of government. This ability to intervene decisively in the market is the inspiration for the title In Fed We Trust. When there is trouble in the financial markets, we turn not to God but to the Federal Reserve to save the day. A bit hubristic, but it is the best description of the behavior of business and political leaders depicted in this book and in other books I have read about this time period.
The book is not just a description of the market interventions by the Treasury Department and the Federal Reserves; it also defends them as necessary to prevent more severe effects, which was the view of government officials. That may be true, but I am concerned that these market interventions merely put off a more severe reckoning by introducing moral hazard into the financial markets. In other words, Wall Street might have gotten the message that if its bets paid off, it would get a big payoff; if it rolled a snake-eye, it would get a bailout, reducing the incentive to manage its risks. Only time will tell.
While the book is about the 2007 panic, it starts out describing the 1907 panic and how John Pierpont Morgan intervened to stabilize the financial markets. At first, people were grateful for his efforts but later found themselves a bit uneasy that one man could wield that much power. In like manner, Ben Bernanke and the Federal Reserve filled the role of market stabilizer in the 2007 panic. Business and political leaders were grateful for the efforts, but the political leaders found themselves shocked at the power wielded by the Federal Reserve, with the central bank functioning as a de facto fourth branch of government. This ability to intervene decisively in the market is the inspiration for the title In Fed We Trust. When there is trouble in the financial markets, we turn not to God but to the Federal Reserve to save the day. A bit hubristic, but it is the best description of the behavior of business and political leaders depicted in this book and in other books I have read about this time period.
The book is not just a description of the market interventions by the Treasury Department and the Federal Reserves; it also defends them as necessary to prevent more severe effects, which was the view of government officials. That may be true, but I am concerned that these market interventions merely put off a more severe reckoning by introducing moral hazard into the financial markets. In other words, Wall Street might have gotten the message that if its bets paid off, it would get a big payoff; if it rolled a snake-eye, it would get a bailout, reducing the incentive to manage its risks. Only time will tell.
February 12, 2023
A book that explains the financial crisis of 2007-2009 in intricate detail, but in layman terms.
Wessel provides an overview of the events surrounding Federal Reserve banking system’s foundation (including the conflict between Jefferson and Hamilton where the latter’s failed attempt at founding First Bank of the US, the precursor to the Federal Reserve), the internal discussions of the current heads of the Department of the Treasury and the Federal Reserve (Bernanke, Geithner, Paulson, Walsh, with special emphasis on Geithner representing a flexible approach versus Paulson using a ‘tough bargainer’ one), the relations between the executive and the legislative branches and their attempt to “sell” their policies to the public (both in substance and in using theatrics).
What the regulators have done can be summarized as follows: tried both methods initially (bailed out Bear Sterns but let Lehman Brothers fail, partially because of an inability to find a suitable buyer and the British regulator FSA’s strict adherence to its rules resulting in the failed attempt of Barclays to come to the rescue), asked for huge sums of money from the congress, bailed out AIG (first real case of too big to fail and it being too interconnected in the financial system), and most importantly, using “whatever it takes” approach to go beyond the traditional monetary policy tools (interest rates, open market transactions, and control of bank reserves) by use of clause 13.3 to help institutions that are outside their purview, and initiating quantitative easing (QE).
Wessel dissects the concept of QE to its alphabet soup components truly like a surgeon. These are:
• TAF: funds loaned directly to bank (bypassing primary dealers) through an auction system and using a much broader set of securities as collateral.
• TSLF (Term Securities Lending Facility): Exchanging institutions’ $200 billion worth hard-to-sell mortgage-backed securities (MBS) with “super-safe” Treasury securities to stop the downward spiraling of those MBS‘ prices
• Commercial Paper Funding Facility: An SPV where the regulators would require companies that want to borrow to pay a fee upfront and set aside this money to create a cushion to protect the FED if any company failed to pay the money back
• TALF: Term ABS loan facility, targeted at consumer lending (shadow banking) allowing big investors to borrow to buy securitized consumer loans, with the catch that if the ultimate consumer failed to pay back the loans the investors would not have to pay back the FED either, at least not the bulk of it
• TARP (Troubled Assets Relief Fund): A large fund created with money obtained from congress to buy assets and invest in banks
Other topics that the author tackles include, Bernanke’s theory of “financial accelerator” which looks at banks’ financial health and loan volume for cues on business cycles, Greenspan’s intuition that combination of low risk premium and credit abundance could result in a financial crisis, but choosing a ‘mop-op’ strategy (when it happens) rather than pre-empting it with interest rate hikes, subprime market and how market players in this sector are not regulated rigorously, the securitization model (how at its origin designed as “originate and distribute’ but turned into “originate and hide” through structured investment vehicles that relied on borrowed money by selling short-term instruments that are highly susceptible to changes in market appetite on short-term lending), conflict of interest at Federal Reserve’s regional branch boards due to their composition of having representatives from both public and private sectors.
In short, this is a great book that examines how on the one hand the regulators lagged behind the curve while financial sector went through a complete transformation due to “innovative” tools, and how on the other they scrambled to make ingenious interventions to save the day.
Wessel provides an overview of the events surrounding Federal Reserve banking system’s foundation (including the conflict between Jefferson and Hamilton where the latter’s failed attempt at founding First Bank of the US, the precursor to the Federal Reserve), the internal discussions of the current heads of the Department of the Treasury and the Federal Reserve (Bernanke, Geithner, Paulson, Walsh, with special emphasis on Geithner representing a flexible approach versus Paulson using a ‘tough bargainer’ one), the relations between the executive and the legislative branches and their attempt to “sell” their policies to the public (both in substance and in using theatrics).
What the regulators have done can be summarized as follows: tried both methods initially (bailed out Bear Sterns but let Lehman Brothers fail, partially because of an inability to find a suitable buyer and the British regulator FSA’s strict adherence to its rules resulting in the failed attempt of Barclays to come to the rescue), asked for huge sums of money from the congress, bailed out AIG (first real case of too big to fail and it being too interconnected in the financial system), and most importantly, using “whatever it takes” approach to go beyond the traditional monetary policy tools (interest rates, open market transactions, and control of bank reserves) by use of clause 13.3 to help institutions that are outside their purview, and initiating quantitative easing (QE).
Wessel dissects the concept of QE to its alphabet soup components truly like a surgeon. These are:
• TAF: funds loaned directly to bank (bypassing primary dealers) through an auction system and using a much broader set of securities as collateral.
• TSLF (Term Securities Lending Facility): Exchanging institutions’ $200 billion worth hard-to-sell mortgage-backed securities (MBS) with “super-safe” Treasury securities to stop the downward spiraling of those MBS‘ prices
• Commercial Paper Funding Facility: An SPV where the regulators would require companies that want to borrow to pay a fee upfront and set aside this money to create a cushion to protect the FED if any company failed to pay the money back
• TALF: Term ABS loan facility, targeted at consumer lending (shadow banking) allowing big investors to borrow to buy securitized consumer loans, with the catch that if the ultimate consumer failed to pay back the loans the investors would not have to pay back the FED either, at least not the bulk of it
• TARP (Troubled Assets Relief Fund): A large fund created with money obtained from congress to buy assets and invest in banks
Other topics that the author tackles include, Bernanke’s theory of “financial accelerator” which looks at banks’ financial health and loan volume for cues on business cycles, Greenspan’s intuition that combination of low risk premium and credit abundance could result in a financial crisis, but choosing a ‘mop-op’ strategy (when it happens) rather than pre-empting it with interest rate hikes, subprime market and how market players in this sector are not regulated rigorously, the securitization model (how at its origin designed as “originate and distribute’ but turned into “originate and hide” through structured investment vehicles that relied on borrowed money by selling short-term instruments that are highly susceptible to changes in market appetite on short-term lending), conflict of interest at Federal Reserve’s regional branch boards due to their composition of having representatives from both public and private sectors.
In short, this is a great book that examines how on the one hand the regulators lagged behind the curve while financial sector went through a complete transformation due to “innovative” tools, and how on the other they scrambled to make ingenious interventions to save the day.
July 14, 2024
A DETAILED ACCOUNT OF BERNANKE AND THE FED DURING 2008-2009
David Wessel is the economics editor of The Wall Street Journal, and regularly appears on PBS. He wrote in the Introduction to this 2009 book, "This is the story of the Bernanke Fed abandoning 'failed paradigms' in order 'to do what needed to be done.' It is the story of what the Fed saw and what it missed, what it did and what it didn't, what it got right and what it got wrong. Above all, it is a story about a handful of people... who found themselves assigned to protect the U.S. economy from the worst economic threat of their lifetimes."
He notes that the Fed's actions "challenged the essence of democracy: the people's elected representatives levy taxes and spend money." (Pg. 7) He reports on the seemingly inconsistent treatment of different institutions: "If Bear (Stearns) was too big to fail, how could Lehman, at twice its size, not be?... After Lehman went over the cliff, no financial institution seemed safe." (Pg. 23) Why was AIG saved, and Lehman not? "AIG was bigger. The markets weren't expecting it to go." (Pg. 25)
He states that "The causes of the Great Panic are many, the list of culprits long." It includes executives and directors; bankers; credit rating agencies; subprime mortgage makers; investors; home buyers whose "house lust... exceeded their paychecks"; politicians; regulators; reporters; and the Federal Reserve. (Pg. 54) The Federal Reserve under Alan Greenspan did not use their powers to restrain subprime lending, nor "spot the enormous risks that the big banks were taking in packaging ... subprime mortgages." (Pg. 61-62)
He notes that President Bush, "aware how unpopular he had become," "remained largely a spectator as the Treasury secretary and Fed chairman... executed the plays." (Pg. 196) To many members of Congress, the Fed was increasingly "acting like a fourth branch of government." (Pg. 198) Yet in hindsight, Bernanke's actions showed that the Fed "could have done more than it did and earlier." (Pg. 272) Still, he concludes that if he had acted differently, "the economy would have been even worse than it is now." (Pg. 275)
This is a fascinating account of the actions of the Fed during this crucial period.
David Wessel is the economics editor of The Wall Street Journal, and regularly appears on PBS. He wrote in the Introduction to this 2009 book, "This is the story of the Bernanke Fed abandoning 'failed paradigms' in order 'to do what needed to be done.' It is the story of what the Fed saw and what it missed, what it did and what it didn't, what it got right and what it got wrong. Above all, it is a story about a handful of people... who found themselves assigned to protect the U.S. economy from the worst economic threat of their lifetimes."
He notes that the Fed's actions "challenged the essence of democracy: the people's elected representatives levy taxes and spend money." (Pg. 7) He reports on the seemingly inconsistent treatment of different institutions: "If Bear (Stearns) was too big to fail, how could Lehman, at twice its size, not be?... After Lehman went over the cliff, no financial institution seemed safe." (Pg. 23) Why was AIG saved, and Lehman not? "AIG was bigger. The markets weren't expecting it to go." (Pg. 25)
He states that "The causes of the Great Panic are many, the list of culprits long." It includes executives and directors; bankers; credit rating agencies; subprime mortgage makers; investors; home buyers whose "house lust... exceeded their paychecks"; politicians; regulators; reporters; and the Federal Reserve. (Pg. 54) The Federal Reserve under Alan Greenspan did not use their powers to restrain subprime lending, nor "spot the enormous risks that the big banks were taking in packaging ... subprime mortgages." (Pg. 61-62)
He notes that President Bush, "aware how unpopular he had become," "remained largely a spectator as the Treasury secretary and Fed chairman... executed the plays." (Pg. 196) To many members of Congress, the Fed was increasingly "acting like a fourth branch of government." (Pg. 198) Yet in hindsight, Bernanke's actions showed that the Fed "could have done more than it did and earlier." (Pg. 272) Still, he concludes that if he had acted differently, "the economy would have been even worse than it is now." (Pg. 275)
This is a fascinating account of the actions of the Fed during this crucial period.
February 11, 2025
Wessell is obviously pro-Bernanke in terms of the steps he took to combat the Financial Crisis, however, does not go so far as to be over the the top in his support--at several points noting the failures of Bernanke and his fellow "Musketeers" both in additional actions that (in Wessell's view) they should have taken and the numerous times they miscalculated the scope of the Panic and its potential impact. The book also suffers from the fact it was written immediately after the crisis, but there is not much that can be done about that fact aside from a new edition (which I would gladly welcome).
On the whole its an incredible account of the Financial Crisis from the lense of the Federal Reserve and does an unmatched job at breaking down difficult economic and financial concepts and devices into easily digestible and understandable chunks for even the market layman while still diving deep enough for those who are looking for more than a surface level recounting of the events of 2007-2009.
I also can't recommend the audiobook read by Dan Worren enough. Dan Worren I love you, please record all of the books I want to listen too.
On the whole its an incredible account of the Financial Crisis from the lense of the Federal Reserve and does an unmatched job at breaking down difficult economic and financial concepts and devices into easily digestible and understandable chunks for even the market layman while still diving deep enough for those who are looking for more than a surface level recounting of the events of 2007-2009.
I also can't recommend the audiobook read by Dan Worren enough. Dan Worren I love you, please record all of the books I want to listen too.
February 23, 2017
One more book about the Fed that culminates with the crash. This one adds a historical review of the origins and early years of the Federal Reserve. The only thing that I found to be valuable new information is the book's comment on the fact that Ben Bernanke knew that monetary easing would not work prior to starting it. As someone who wants to respect Bernanke, I felt that the only he could save his economics credibility was by acknowledging his anticipation that printing would in the end fail. On the other hand, that he engaged in the practice at all is a totally different issue. I would like to believe that, as a great public servant, he did what he could while the Obama administrations destroyed any sense of business confidence. To me, the evidence of the pushing of capital to fewer and riskier assets is enough to indicate that easing has failed to deliver on anything other than the formation of a new set of bubbles.
If you are into economics, this book will be interesting. If not, then move on to the next recession inspired narration.
If you are into economics, this book will be interesting. If not, then move on to the next recession inspired narration.
June 2, 2021
An excellent overview of the financial crisis of 2008. Well written and easy to follow the timeline of events. After reading this I felt I had a much better picture of how deep the roots of the problems of the great panic went and the characters involved in the crisis.
In 2008 I was working my first job out of college and was more concerned with keeping my head above water than with anything going on with the Panic. This book filled in quite a few blanks for me and answered many of the questions I had about what was going on. I have only had two semesters of economics classes and I had no trouble understanding the more technical aspects of this book so I would say it is a good account for a novice who just wants a basic overview of events.
In 2008 I was working my first job out of college and was more concerned with keeping my head above water than with anything going on with the Panic. This book filled in quite a few blanks for me and answered many of the questions I had about what was going on. I have only had two semesters of economics classes and I had no trouble understanding the more technical aspects of this book so I would say it is a good account for a novice who just wants a basic overview of events.
August 27, 2019
3.5 stars. I’ve read several of these accounts of the financial crisis, from the perspective of the banks, the regulators, general overviews, etc. I don’t think this is the best one or the worst one. It does a good job outlining the issues the fed has in each of the situations, and doesn’t look like it pulls any punches with fed missteps. It does help to have a general sense of the securities they are talking about, but I didn’t find the periodic ‘dashboards’ particularly helpful. I think more could have been done in an effort to really explain the fed balance sheet and how the efforts affected those values, and what would eventually need to be done to unwind some of the steps taken.
January 5, 2025
In Fed We Trust: Ben Bernanke's War on the Great Panic by David Wessel offers a comprehensive and insightful look at how Ben Bernanke, as Chairman of the Federal Reserve, navigated the economic crisis of 2008. Wessel explores Bernanke’s unconventional yet effective policies to stabilize the U.S. economy, including interest rate cuts and emergency interventions. The book provides a detailed account of the Federal Reserve's response, showcasing Bernanke's leadership in a time of uncertainty. Wessel’s clear writing and thorough research make this a valuable read for those interested in economics, policy, and the intricacies of financial crises.
October 30, 2022
Listened to this on audiobook, so unfortunately I wasn’t able to slow down and think over some of the topics discussed or the numbers. But still really interesting and engaging. I hadn’t thought of the theatrics of politics very much and even though it wasn’t a main theme, that definitely stood out to me.
Also just how crazy of a time the housing/banking meltdown must have been for people who understood what was going on in the moment. I had no idea any of this was happening in the moment or the gravity of it.
Also just how crazy of a time the housing/banking meltdown must have been for people who understood what was going on in the moment. I had no idea any of this was happening in the moment or the gravity of it.
January 1, 2023
A good book that does an excellent job of articulating the events of the banking/ mortgage crisis.
I think the criticism of the Fed and the Treasury is easy after the fact. It is clear to me that if actions weren't taken another depression was likely.
Meanwhile US politicians care about how things are perceived and have no courage. They wouldn't have passed a vote earlier because they almost didn't pass it later when the situation was dire.
I hate the bad practices that led to the situation but I'm glad someone was willing to do 'Whatever it takes' to prevent a second depression.
I think the criticism of the Fed and the Treasury is easy after the fact. It is clear to me that if actions weren't taken another depression was likely.
Meanwhile US politicians care about how things are perceived and have no courage. They wouldn't have passed a vote earlier because they almost didn't pass it later when the situation was dire.
I hate the bad practices that led to the situation but I'm glad someone was willing to do 'Whatever it takes' to prevent a second depression.
September 1, 2025
My favorite professor recommended this to me! I think this was a very well written book, and the content was easy to follow (even for people who aren’t versed in macroeconomics like myself).
Also side note: I got so excited when the book randomly mentioned that Ben Bernanke went to shul in my hometown during undergrad.
Also side note: I got so excited when the book randomly mentioned that Ben Bernanke went to shul in my hometown during undergrad.
June 1, 2019
Audiobook insightful read about the feds actions and non-actions throughout the Great Recession. Memorable for Greenspan’s ignorance and Sheila Baer’s (Head of FDIC) persistence to protect bank accounts.
January 26, 2020
#20 - 3. Audiobook. Detailed account of all the discussions, actions and trauma surrounding the financial crisis of 2007 - 2009. Not a novel per se but an interesting account of what went on behind the scenes to ultimately save the world economy from collapse
Read
October 8, 2019Wow,
The author fills in the blanks aon the causes of the depression and some of the contributing factors to WW 2
The author fills in the blanks aon the causes of the depression and some of the contributing factors to WW 2
January 1, 2022
An impressive book, and the most memorable one I read in 2009. Huge respect is owed to Wessel for writing it so quickly while the financial crisis was still ongoing.
July 10, 2023
Good read! I enjoyed this one after Too Big to Fail as the latter was a bit more told in story-fashion whereas In FED we trust seemed to explain better.
September 22, 2023
I read this for an MBA course and it was fine. It definitely helped paint the picture for what went down during the Global Financial Crisis.
August 5, 2016
A very readable account inside the actions and discussions of the federal reserve during the 2008 financial panic. David Wessel peppers the account with interesting sides. Like, the fridge stocked with subway sandwhiches acquired by the fed, because they had never been accustomed to all-night meetings before. Bernanke worked with treasury secretary Paulson, New York Fed president Geithner (who follows Paulson as treasury secretary). It is interesting to see what deals could be worked out (forcing and assisting the Bear Sterns buyout by JPMorgan Chase) to allowing both Lehman Brothers and Washington Mutual to fail. Congress was very reluctant to be involved, and only reluctantly assisted bailing out Fannie Mae, Freddie Mac, AIG, and later through TARP. In the meantime, the Fed was heavily involved in investing hundreds of billions of dollars in loans and asset acquisition. Their assets grew from $800 billion pre-crisis to over $2.2 Trillion by the October 2008.
Bernanke and others were slow to see the seriousness of the problem. In mid 2008, many fed presidents were more worried about inflation than any imminent financial problems, helping delay any decrease in interest rates. However, once things started kicking in early fall, Bernanke and others tirelessly worked out creative solutions and deals forcing Bank of America to buy Merrill Lynch, persuading the FDIC to insure uncharacteristically "promissory notes, commercial paper, bank-to-bank loans, and other unsecured lending" and also to prevent the failure of Wachovia bank.
They didn't have a plan and did their best to aggressive as they played it out. However after Paulson asked congress for the $700 billion TARP fund, Wessel records, "No one thought that could possibly be insufficient. Once again, they were wrong. Every time officials...thought they finally had gotten ahead of the Great Panic, they turned out to be insufficiently pessimistic. This would be a distinguishing characteristic of this chapter in American economic history."
By 2010, the CBO estimated the cost of TARP to tax payers was only $109 billion. The federal acquisition of Citigroup resulted in a $7.19 billion profit for the treasury. Still, the problem of "too big too fail" has still, in 2016, to be completely addressed. The Fed created moral hazard by assisting JPMorgan purchase Bear Sterns in March 2008. Had things been different if they let them fail early on? What is to prevent another crisis assisted by the unwritten expectations of a bailout? Perhaps there is hope in learning from our mistakes. Many of the thoughts and ideas and regulatory actions invented in 2008 may be fleshed out, and formalized in much of the same way as bankruptcy and runs on deposits. The single cause of the crisis occurred in the shadow banking system. A hole, where no regulator held jurisdiction. The Fed assumed this position and filled the vacuum.
Bernanke and others were slow to see the seriousness of the problem. In mid 2008, many fed presidents were more worried about inflation than any imminent financial problems, helping delay any decrease in interest rates. However, once things started kicking in early fall, Bernanke and others tirelessly worked out creative solutions and deals forcing Bank of America to buy Merrill Lynch, persuading the FDIC to insure uncharacteristically "promissory notes, commercial paper, bank-to-bank loans, and other unsecured lending" and also to prevent the failure of Wachovia bank.
They didn't have a plan and did their best to aggressive as they played it out. However after Paulson asked congress for the $700 billion TARP fund, Wessel records, "No one thought that could possibly be insufficient. Once again, they were wrong. Every time officials...thought they finally had gotten ahead of the Great Panic, they turned out to be insufficiently pessimistic. This would be a distinguishing characteristic of this chapter in American economic history."
By 2010, the CBO estimated the cost of TARP to tax payers was only $109 billion. The federal acquisition of Citigroup resulted in a $7.19 billion profit for the treasury. Still, the problem of "too big too fail" has still, in 2016, to be completely addressed. The Fed created moral hazard by assisting JPMorgan purchase Bear Sterns in March 2008. Had things been different if they let them fail early on? What is to prevent another crisis assisted by the unwritten expectations of a bailout? Perhaps there is hope in learning from our mistakes. Many of the thoughts and ideas and regulatory actions invented in 2008 may be fleshed out, and formalized in much of the same way as bankruptcy and runs on deposits. The single cause of the crisis occurred in the shadow banking system. A hole, where no regulator held jurisdiction. The Fed assumed this position and filled the vacuum.
January 3, 2013
This book is about how Ben Bernanke / The Fed battled against "The Great Panic" that besieged us. It reads like a fairly dry history of what transpired - kind of like a summary of what we've been watching on CNBC the last 2 years. Somehow Wessel took one of the most exciting moments in our current lives and made it almost bland and somewhat boring. Sure, there are some juicy facts but only after you get through more than half of the book. Overall, there is not much revealed that's earth-shattering if you kept abreast of what happened during this time. The book is at times choppy in motion and repetitive in content. I found that the first half of the book was a waste of my time -- the set-up the author felt necessary could have been presented much more succinctly. Example: there is a section within Bernanke's biographical chapter that details a prank he played on President Bush one day by coordinating the whole economic staff, along with even Dick Cheney, to wear tan socks as an inside joke among Bernanke and Bush. There are other strange off-topic insertions, like the curious offering that Donald Kohn, Fed Vice-Chair, lived in his son's basement for a while and that he used to ride his bike to work, parking his bike in the Fed garage that was reserved for its governors' cars. And that he liked to run up and down the stairs of the Fed building. Uh, huh.
The first inclination you have when you pick up this book is to dive in deep and fast to find out what went on in the minds of Bernanke, Paulson, and Geithner, among others. There must have been some amazing discussions, fraught with fear but Wessel never quite captures this for the reader to experience. Instead of providing a window into these men's thoughts / thought processes during this pivotal, riveting time, the book doesn't go far beyond merely reciting the actions they took, with some quotes from these men, scattered in as almost afterthoughts. [The footnote style is arguably incomplete with respect to some quotes.]
Overall disappointing. Wessels' cursory conclusions end up sounding rudimentary - likely attributable to what was probably a rush to publish and capitalize on the current curiosity-- which is understandable. But, there is still more to this subject. As of today's FOMC meeting, the Fed still hasn't started to unwind its actions. So, the book seems to be a bit early. Wessel even mentions that Hank Paulson is in the process of penning his own account of the economic crisis. Maybe Paulson will take us deeper into the minds of the big players during this frightful period, even if it is through his eyes, and not a third party's.
The first inclination you have when you pick up this book is to dive in deep and fast to find out what went on in the minds of Bernanke, Paulson, and Geithner, among others. There must have been some amazing discussions, fraught with fear but Wessel never quite captures this for the reader to experience. Instead of providing a window into these men's thoughts / thought processes during this pivotal, riveting time, the book doesn't go far beyond merely reciting the actions they took, with some quotes from these men, scattered in as almost afterthoughts. [The footnote style is arguably incomplete with respect to some quotes.]
Overall disappointing. Wessels' cursory conclusions end up sounding rudimentary - likely attributable to what was probably a rush to publish and capitalize on the current curiosity-- which is understandable. But, there is still more to this subject. As of today's FOMC meeting, the Fed still hasn't started to unwind its actions. So, the book seems to be a bit early. Wessel even mentions that Hank Paulson is in the process of penning his own account of the economic crisis. Maybe Paulson will take us deeper into the minds of the big players during this frightful period, even if it is through his eyes, and not a third party's.
July 28, 2012
This book gives the background and dynamic internal of how Federal Reserve, aka the Fed managed to handle the subprime mortgage crisis in 2008, and triggered economic depression that is dubbed "the greatest economic crisis since Great Depression 1929"
The book offered informative insight about how governor of the Fed dealed with day-to-day issues, asking approval from the congress and how they should act to minimise the effect of the crisis, which bank must be helped, etc etc.
I find this book is very informative since it gives me some insight of the Fed since Bank Indonesia (Indonesian central Bank) is like a mirror compared to the Fed:
* The Fed, despite the name of being federal reserve, it is privately owned bank with shareholders from US largest bank.
* The fed doesn't need approval neither from Treasury or Congress to bailout or printing money
* The 2008 crisis has caused concern in US government itself due to its ability to act without approval from any branch of government
* Lehman brothers was allowed to collapse because all of its assets are toxic and not valuable at all. There was hard time do decide whether a company faces illiquidity (Bear Sterns) or insolvency (Lehman Brothers)
* AIG was helped due to being insurance and poses more risks compared to Lehman, therefore it must be helped
* AIG, Lehman, and Bear Sterns are not banks, it is not the Fed's responsibility to help them
* Intervening the economy and saving collapsing financial institutions might cause moral hazard and leading more bank closure because the financial investment companies to act more irresponsibly
* During crisis, government must guarantee all money that is stored in the banks, transaction, etc to ensure there is no bank run otherwise it will trigger the vicious circle
* The crisis happened because financial companies securitise bad loans (mortgage-backed-security)and sell them to investors to secondary market. It is crazy because this market is highly unregulated and serves as shadow banking system. When people cannot pay the loan, the securities valued less than toilet papers and will become toxic assets.
The book offered informative insight about how governor of the Fed dealed with day-to-day issues, asking approval from the congress and how they should act to minimise the effect of the crisis, which bank must be helped, etc etc.
I find this book is very informative since it gives me some insight of the Fed since Bank Indonesia (Indonesian central Bank) is like a mirror compared to the Fed:
* The Fed, despite the name of being federal reserve, it is privately owned bank with shareholders from US largest bank.
* The fed doesn't need approval neither from Treasury or Congress to bailout or printing money
* The 2008 crisis has caused concern in US government itself due to its ability to act without approval from any branch of government
* Lehman brothers was allowed to collapse because all of its assets are toxic and not valuable at all. There was hard time do decide whether a company faces illiquidity (Bear Sterns) or insolvency (Lehman Brothers)
* AIG was helped due to being insurance and poses more risks compared to Lehman, therefore it must be helped
* AIG, Lehman, and Bear Sterns are not banks, it is not the Fed's responsibility to help them
* Intervening the economy and saving collapsing financial institutions might cause moral hazard and leading more bank closure because the financial investment companies to act more irresponsibly
* During crisis, government must guarantee all money that is stored in the banks, transaction, etc to ensure there is no bank run otherwise it will trigger the vicious circle
* The crisis happened because financial companies securitise bad loans (mortgage-backed-security)and sell them to investors to secondary market. It is crazy because this market is highly unregulated and serves as shadow banking system. When people cannot pay the loan, the securities valued less than toilet papers and will become toxic assets.
October 2, 2009
When I got to page 150 I knew this was the book I was looking for. An account of the “Great Panic of 2008” seen through the eyes of someone who thinks the Glass Steagall Act of 1999 played a significant role. In fact, this is someone who will present a case contrary to the book I recently read by Thomas Sowell, who placed all the blame on political stunts designed to make housing affordable to all. Wessel writes for the WSJ, and so I was a little stunned to read references to Glass Steagall but anxious to hear how on earth this Act can provide any significant explanation as to what happened. He mentions it, but doesn’t explain its significance in any way.
But this really wasn’t a book about the cause of the crisis, so I guess the gratuitous reference to Glass Steagall while ignoring the underlying cause only gives the reader some idea where his biases lie, nothing much else. I could have read the back cover too. Wesell has won two Pulitzer Prizes, one having to do with continued racism in Boston in 1984 and the other having to do with some kind of corporate malfeasance. I wonder if he was using mortgage loan discrimination in Boston in his 1984 Pulitzer story. That could help explain his complete neglect of CRA, something Sowell put as the true cause.
This was a book about the powers the FED used to deal with the crisis. If you’re looking for a book to explain why this was necessary, this wouldn’t be the book; although Wesell writes as if he’s explained why it was necessary in the summary chapter. If you’re looking for a book to explain why this was unnecessary, this wouldn’t be the book. If you want to know how powerful the FED really is, this is the book you should read. But if you’re not a financial economics dilettante, you will find this book extremely boring. Despite the author's biases, I found it interesting and enlightening.
But this really wasn’t a book about the cause of the crisis, so I guess the gratuitous reference to Glass Steagall while ignoring the underlying cause only gives the reader some idea where his biases lie, nothing much else. I could have read the back cover too. Wesell has won two Pulitzer Prizes, one having to do with continued racism in Boston in 1984 and the other having to do with some kind of corporate malfeasance. I wonder if he was using mortgage loan discrimination in Boston in his 1984 Pulitzer story. That could help explain his complete neglect of CRA, something Sowell put as the true cause.
This was a book about the powers the FED used to deal with the crisis. If you’re looking for a book to explain why this was necessary, this wouldn’t be the book; although Wesell writes as if he’s explained why it was necessary in the summary chapter. If you’re looking for a book to explain why this was unnecessary, this wouldn’t be the book. If you want to know how powerful the FED really is, this is the book you should read. But if you’re not a financial economics dilettante, you will find this book extremely boring. Despite the author's biases, I found it interesting and enlightening.
December 5, 2013
This is another account of the financial crisis that began in late 2007 or so and really took off in 2008. The consequences of the crisis are still with it. The focus of this take on this period is on Ben Bernanke and the Federal Reserve. The implied plan is to use the history and background of the Fed as the basis for understanding what Bernanke and Paulson (and others) were trying to do in managing the crisis. It is a helpful focus and the book is informative in understanding what the Fed did and why during the crisis. It is also honest in considering the experimental nature of how the crisis was managed -- and thus helps shed light on the perplexing nature of the policy path pursued by Bernanke and the Fed. Overall, the book is fairly effective and strikes a good balance between the personal characteristics of the actors involved and the institutional constraints within which they worked. This was a highly complex crisis and no single book will render it understandable. This book ends up moving the story in the right direction. I especially like how Wessel is thorough in showing both the intentions of this changes, as well as the uncertainties and remained among all the principal actors throughout this very unusual crisis. It is easy to get overwhelmed in reading about the crisis, but this book is worth the effort.
April 4, 2011
This book focuses on Ben Bernanke, the head of the Federal Reserve, and the actions his office took throughout the worst of the financial crisis. It is an impressive book, with excellent access to high-level officials, and does a great job putting the many overlapping issues in context with others. For those now looking back on 2008 and especially the fall of ‘08 as a big pile of crises, one on top of another, In Fed We Trust does a good job walking through each, exploring the deals and negotiations that preceded and followed each event, and touching on the human and ideological perspectives of those people involved in the crucial decisions.
The one shortcoming of the book is the meta-analysis about whether the actions taken by the Fed and the Treasury during the financial crisis have improved or diminished the prospects for America. It talks about regulations and ideologies and free-market issues, but Wessel does not explore the idea that by taking the drastic actions laid out in the book, rather than other possible courses of action, that those who are being praised in the near-term may end up being blamed for continuing systemic weaknesses that were not addressed precisely because of the drastic steps taken during the financial crisis.
The one shortcoming of the book is the meta-analysis about whether the actions taken by the Fed and the Treasury during the financial crisis have improved or diminished the prospects for America. It talks about regulations and ideologies and free-market issues, but Wessel does not explore the idea that by taking the drastic actions laid out in the book, rather than other possible courses of action, that those who are being praised in the near-term may end up being blamed for continuing systemic weaknesses that were not addressed precisely because of the drastic steps taken during the financial crisis.
October 21, 2024
If you're looking for a book that will break down the 2008 crisis in the friendliest way possible towards those who are far from finance, In Fed We Trust is the book for you. It's genuinely captivating and it does its best to explain to a general audience what actually happened and why. Wessel's language is as descriptive as the topic allows, creating vivid images of Wall Street musketeers fighting an economic calamity. It almost feels like some sort of adventurous literature with characters having so much at stake.
What prevents it from being truly fascinating is Wessel's way of building his narrative. He starts with a premonition of the crisis on the first couple of pages and then switches to describing the state Bernanke's predecessor left the economy in; then he moves on to talk about Bernanke's background, which seems natural at this point. Yet then you find yourself reading about another musketeer's background, and then one more backstory, and one more. By the time you get to the actual mayhem of 2007-2008, the story feels like a balloon with all the air having been let out. It seems like the book would've benefited from a bit more linear narrative without constant jumps between visions of the crisis and biographical facts about the main characters.
What prevents it from being truly fascinating is Wessel's way of building his narrative. He starts with a premonition of the crisis on the first couple of pages and then switches to describing the state Bernanke's predecessor left the economy in; then he moves on to talk about Bernanke's background, which seems natural at this point. Yet then you find yourself reading about another musketeer's background, and then one more backstory, and one more. By the time you get to the actual mayhem of 2007-2008, the story feels like a balloon with all the air having been let out. It seems like the book would've benefited from a bit more linear narrative without constant jumps between visions of the crisis and biographical facts about the main characters.
September 27, 2009
…about a year ago, America was pretty close to falling off the cliff and into another depression. "In Fed We Trust" outlines the confusing and hectic days when the crisis was at its worst. Its a look back, behind the scenes at the Federal Reserve, at the internal disagreements, debates and 11th hour decisions to bail out some of the most troubled firms. In one of the many informal and light-hearted anecdotes, the Fed had made a deal with a local Subway to keep a fridge stocked with turkey and ham sandwiches as “emergency rations” in case of late-night sessions. These little tidbits keep the book from becoming dry, although some of the humor may be somewhat cheesy and wonkish.
One last aspect of note is the economic and financial technical terminology used in the book. Plenty of them are scattered throughout, but there is a small glossary in the back and the author also does attempt to repeat his explanations for convenience. I probably counted about three times that he describes how the Fed influences the rates by buying / selling securities, so this will probably help those who may not have an expert level understanding of how the Fed works.
One last aspect of note is the economic and financial technical terminology used in the book. Plenty of them are scattered throughout, but there is a small glossary in the back and the author also does attempt to repeat his explanations for convenience. I probably counted about three times that he describes how the Fed influences the rates by buying / selling securities, so this will probably help those who may not have an expert level understanding of how the Fed works.
December 20, 2009
The book in general was a little too Bob Woodward for me -- that is, focusing too much on individuals without discussing broader historical/economic/etc. contexts. It was better than Woodward in that respect (hard to be worse), especially in the second half of the book, but still very individual-centric. The basic thesis is that Bernanke rocks.
That said, it did help put Bear Stearns, Lehman, and AIG into somewhat better perspective. And I know a lot more about the Fed than I did.
More broadly, the book also illustrates how critical the federal government was in preventing a massive economic collapse. The stimulus gets a lot of crap, but the Fed essentially injected three times the stimulus (2.3 trillion or so) into the economy over the past year and a half. Hard-core libertarians and free marketers will have difficulty reconciling their ideology with September 2008 and its aftermath. Government worked -- and we'd be in the middle of a Second Great Depression if it had stayed on the sidelines.
That said, it did help put Bear Stearns, Lehman, and AIG into somewhat better perspective. And I know a lot more about the Fed than I did.
More broadly, the book also illustrates how critical the federal government was in preventing a massive economic collapse. The stimulus gets a lot of crap, but the Fed essentially injected three times the stimulus (2.3 trillion or so) into the economy over the past year and a half. Hard-core libertarians and free marketers will have difficulty reconciling their ideology with September 2008 and its aftermath. Government worked -- and we'd be in the middle of a Second Great Depression if it had stayed on the sidelines.
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