In New Book, Former Chairman Juggles Fed Heroics and Candid Limitations

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Ben Bernanke's new book "Courage to Act: a Memoir of a Crisis and its Aftermath" is on sale now.

Ben BernankeIn the midst of a spiraling economy careening toward the greatest disaster the world has ever seen, the man at the helm of the Federal Reserve took bold steps to pull America out of its doomed trajectory.

Such is the gripping drama portrayed in former Fed Chairman Ben S. Bernanke’s new book “The Courage to Act: A Memoir of a Crisis and Its Aftermath.”

In it, the author is candid about the creative moves made to stabilize the situation, and yet honest, too, about the system’s limitations.

“The book’s biggest revelation is that when testifying before Congress immediately after Lehman (Brothers’) collapse, Mr. Bernanke hid his belief that the government had been powerless to save the bank,” The Economist asserted in its review of the new release.

The New York Times also honed in on that point in its Dealbook review. “Speculation has swirled for years about whether the government could have saved the firm and whether its failure was a political choice.”

And Bernanke addresses the question head-on: “In congressional testimony immediately after Lehman’s collapse, [Treasury Secretary Henry M.] Paulson and I were deliberately quite vague when discussing whether we could have saved Lehman. But we had agreed in advance to be vague because we were intensely concerned that acknowledging our inability to save Lehman would hurt market confidence and increase pressure on other vulnerable firms.”

With Goldman Sachs and Morgan Stanley next in line to teeter on the brink of bankruptcy, the Times wrote that Paulson summed up the situation eloquently: “We didn’t want them to arrive thinking that we would be there waving a government checkbook.”

The reality was that at $200 billion in losses, saving Lehman Brothers was impossible.

Fed Chairman Ben Bernanke and Treasurey Secretary Henry Paulson testifying to congress as the economy teetered.--via masslive.com
Fed Chairman Ben Bernanke and Treasurey Secretary Henry Paulson testifying to congress as the economy teetered.–via masslive.com

The book illuminates the internal struggle between such limitations and a perception of the Fed as the savior of the world economy.

“The Fed has what’s called a ‘dual mandate’: to protect jobs and also to protect the stability of the currency. Or, in other words, to maximize employment and minimize inflation,” the Times explained. “These goals are inherently contradictory, and the Fed has only a limited number of dials it can fiddle with to achieve the best possible combined result.”

“Bernanke makes a compelling case that in 2007 and 2008, the world economy came very close to collapse, and only novel efforts by the Fed (cooperating with other United States and foreign government agencies) saved us from an economic catastrophe greater than the Great Depression,” the NYT review concluded.

Bernanke put it this way, according to his website: “The bursting of a housing bubble in 2007 exposed the hidden vulnerabilities of the global financial system, bringing it to the brink of meltdown.

From the implosion of the investment bank Bear Stearns to the unprecedented bailout of insurance giant AIG, efforts to arrest the financial contagion consumed Bernanke and his team at the Fed. Around the clock, they fought the crisis with every tool at their disposal to keep the United States and world economies afloat.”

The memoir also exposes the thinking behind the new strategy now being employed at the Federal Reserve. Beyond bailouts and quantitative easing, The Economist added, “the real theme of the book is communication.

Mr. Bernanke made the Fed more transparent. In 2012, he fulfilled a long-term ambition of setting an explicit inflation target; he also introduced regular Fed press conferences. He appeared twice on ‘60 Minutes’, a television program, to explain Fed policies. ‘Monetary policy is 98 percent talk and 2 percent action,’ he argues.

As the Fed tried to rev up the economy after the crisis, it came to rely on ‘forward guidance’ — in effect, a signal that the Fed intended to keep policy looser for longer than markets might otherwise have expected.”

Read more of Bernanke’s take on the “necessary but unpopular” actions made “in the interests of ordinary Americans” in “The Courage to Act: A Memoir of a Crisis and Its Aftermath” here, as well as the opinions of reviewers at The Economist here and The New York Times here and here. Then judge for yourself whether the former Fed chairman, his staff, colleagues and policymakers “mustered the moral courage to do what was necessary, often in the face of bitter criticism and condemnation.”

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