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In Fed We Trust: Ben Bernanke's War on the…

In Fed We Trust: Ben Bernanke's War on the Great Panic

by David Wessel

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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. ( )
  justindtapp | Jun 3, 2015 |
73. In Fed We Trust by David Wessel

Borrowed from a friend, this one was quite an unlikely read for me. My finance background generally makes me too vary of books written about an event, with the perfect gift of hindsight. Too many articles occupy my browser and mail space, inspecting, dissecting and criticising every decision made by the Ministry of Finance, the Central Bank, the Securities Regulator, other Financial or Regulatory bodies including the Stock Exchanges themselves. Some of such criticisms and doomsday scenario do occasionally come true, but on the virtue of a broken clock being right twice in a day, than anything else. It would perhaps be prudent to put a disclaimer here declaring myself to be part of this ecosystem.

Anyway, it was with some trepidation that I read this book, half expecting it to be a blind bashing of every decision the Fed did make in the period 2007-10, a bad period for us finance professionals, my entry into the corporate world itself being ill-timed following this great meltdown. Many of such fears were greatly misplaced though, if anything, David Wessel has celebrated Bernanke in his work; you see, criticising a financial decision maker is too easy and infinitely more tempting that giving credit for a job well done.

The book carefully takes us through the years, giving us a glimpse of the Greenspan era, the appointment of Bernanke himself, and then the roller-coaster ride of the sub-prime crises, the events leading upto Lehmann, the events post Lehmann, the curious cases of Fannie Mae and Freddie Mac, and the reorganisation of the entire Investment Banking sectors, as we knew it. The book also took me through the world of multiple regulators in US and how financial institutions go cherry-picking for the most lenient one, a problem acutely faced in India, and a problem I fear will only worsen till fixed.

The book recognises and evaluates Bernanke, the Academician, using theories learnt from his lifelong study of the Great Depression, experimenting with all the tools available with the Fed, creatively creating a few new ones, when the old ones didn't seem to be up to the task.

Personally, I have and have had mixed feelings about the way the Panic was handled. While fully appreciating that the steps taken by Bernanke and his team were critical and absolutely necessary, I remain unconvinced if the Moral Hazard issue couldn't have been handled better. While I do believe that saving those banks from bankruptcy was critical, whether protecting shareholders' value and golden parachutes for the executives should have been part of the deal, well, I remain unconvinced.

The book touched upon many things I knew, many more that I thought I knew and exposed me to even more things I didn't. ( )
  PiyushC | Dec 26, 2013 |
mostly a chronology of the Fed's actions in Great Panic with lots of Wessel's own opinions thrown in (sometimes rather snidely), a good brief overview of the bank crisis, but not very deep and certainly limited in its breadth
  FKarr | Oct 31, 2011 |
An engaging account of the Fed's heroic (and at times /ad hoc/) struggle with an out-of-context complex of disasters and incredibly complicated vicious circles when the world financial system partially imploded. It could have been much worse: When the black swans came home to roost and impossible events cascaded, the Fed had to step far beyond its accustomed institutional role such that it had to act as a virtual fourth branch of government, much to the astonishment of many. This history is to the Federal Reserve and high finance what Apollo 13 was to NASA or the Cuban Missile Crisis was to the Cold War --a glimpse into the abyss.
  kencf0618 | Aug 28, 2010 |
The work is strong on the behind-the-scenes machinations of those who would ignore the hopes, dreams, and desires of ordinary Americans while making disastrous and irresponsible decisions. Although Wessell does his level best to humanize Bernanke, Geithner and other principals, they come off as unprincipled elitists they truly are. Those who made the unfortunate choices to further the recession starting from Bush to the Obama regime, as Wessel demonstrates, only sought to further their end of not being blamed for a second Depression. Along the way the economic picture of the U.S. worsened as BushObama perpetuated their own ends. It is an important if ultimately sickening story of the White House and Wall Street working hand in glove against Main Street.
  gmicksmith | Aug 22, 2010 |
Showing 1-5 of 8 (next | show all)
Wessel, economics editor at The Wall Street Journal, reveals in scary detail how unprepared the politicians and regulators truly were for the calamity, and how close we came to a depression that could easily have rivaled what the nation saw in the 1930s.
The book gives a concise chronology of the events leading up to the crisis, with technical details of the banking system and the Fed, in clear language with little financial jargon.
added by Shortride | editReuters, Neil Stempleman (Aug 7, 2009)
"In Fed We Trust" is persuasively told, richly reported, and thoroughly absorbing
added by Shortride | editBusinessWeek, Roben Farzad (Aug 6, 2009)
Wessel is the consummate Washington financial journalist. Readers of his weekly Capital column in the Wall Street Journal, where he is economics editor, will recognize the assured voice and insider’s access that give the book its heft.
For all of us then, David Wessel’s new book “In Fed We Trust” is essential, lucid — and, it turns out, riveting — reading.
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Amazon.com Product Description (ISBN 0307459683, Hardcover)

“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.

(retrieved from Amazon Thu, 12 Mar 2015 18:18:17 -0400)

(see all 2 descriptions)

In this penetrating look inside the most powerful economic institution in the world, the Federal Reserve, David Wessel illuminates its opaque and undemocratic inner workings, while revealing how its chairman Ben Bernanke led the desperate effort to prevent the world's financial engine from grinding to a halt.… (more)

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