Phillip J. Moss, The Daily Record Newswire
Ben Bernanke was chairman of the Federal Reserve from 2006 to 2014, presiding over the most tumultuous financial crisis in this country since the Great Depression, caused in large part by the subprime mortgage bubble.
During his term, the financial giant Bear Stearns was rescued by a loan from the Fed, the even larger firm of Lehman Brothers went into bankruptcy, and the insurance and financial giant AIG was rescued with a loan of $185 billion from the Fed.
Those events in particular generated much criticism of Bernanke and the Fed, from print and television journalists, other economists and elected officials. But as Bernanke points out in his memoir, each of the events was different in ways that dictated the outcome.
The Fed had sufficient time to engineer a takeover of Bear Stearns by other Wall Street firms, without public money, but Lehman Brothers waited too long to acknowledge the depth and breadth of its problems: By the time the firm was willing to look for a buyer, the value of its assets had fallen so far that no one was willing to make an offer.
The bankruptcy of AIG would have threatened the U.S. (and potentially the international) financial system, and the company's board was forced to pay a high rate of interest (11.5 percent) and give the government an 80 percent ownership stake as conditions for the rescue, ultimately yielding the taxpayers a profit of about $25 billion.
Other casualties of the tumult included Washington Mutual (acquired by J.P. Morgan), Wachovia (acquired by Wells Fargo), Merrill Lynch (acquired by Bank of America) and Citigroup and Bank of America itself, both of which had to be "rescued" by the Fed.
Bernanke's memoir also covers the Troubled Asset Relief Program, or TARP, and Quantitative Easing, or QE, and explains why the failure to save financial institutions would have devastated the economy and hurt millions more.
Bernanke does a good job of explaining the financial complexities in simple and lucid prose, intelligible to this non-economist with some modest effort on my part.
His frankness in acknowledging mistakes he made in his tenure at the Fed is refreshing. It stands in stark contrast to the refusal of many in Congress to acknowledge that body's own responsibility in failing to enact laws and empower regulators that could have prevented the excesses that led to the crisis, and who then blamed Bernanke and the Fed for "bailing out Wall Street at the expense of Main Street."
Whether one agrees or disagrees with the actions of the Federal Reserve during Bernanke's tenure there, or the conclusions expressed in his memoir, the book is a useful guide to understanding the most serious financial and economic crisis of our time, and should be a "must read" for anyone who holds or aspires to high office.
"The Courage to Act: A Memoir of a Crisis and its Aftermath"
By Ben S. Bernanke
W.W. Norton & Co., 2015
579 pages; $35
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Philip J. Moss is an arbitrator and mediator of labor and employment matters, and a member of the Maine State Panel of Mediators. He lives in South Portland, Maine.
Published: Fri, Apr 29, 2016
