Product Description

“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.

Product Details

• Amazon Sales Rank: #4275 in Books
• Published on: 2009-08-04
• Released on: 2009-08-04
• Format: Deckle Edge
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 336 pages

Features

• ISBN13: 9780307459688
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
• Click here to view our Condition Guide and Shipping Prices

From The Washington Post
From The Washington Post's Book World/washingtonpost.com David Wessel's "In Fed We Trust" opens on Sept. 14, 2008, when Ben Bernanke, the chairman of the Federal Reserve, is badly sleep-deprived, living on trail mix and wrestling with the decision of a lifetime. For months, he has been trying to stamp out the spreading wildfire of the international financial crisis, yet he, along with Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner, can't seem to get ahead of the flames. Bernanke had slashed interest rates, helped the Treasury Department and Wall Street bail out the investment bank Bear Stearns -- and still, Wessel writes, "every time officials at the Treasury or the Fed thought they finally had gotten ahead of the Great Panic, they turned out to be insufficiently pessimistic." And on Sept. 14 the problem is what to do about Lehman Brothers. A lifelong scholar of the Great Depression and its causes, Bernanke deeply believes that the global economic crisis of the 1930s, with all its baleful political consequences, could have been avoided if the Federal Reserve had more aggressively pumped liquidity into the economy. He has also been informed that the venerable Wall Street investment firm, with hundreds of billions of dollars worth of connections to the global financial sector, is running out of cash. A second Great Depression is in the offing -- the moment, in a sense, for which Bernanke has been preparing his whole life. Yet he does not know quite what to do. No private-sector buyer for Lehman can be found. The Fed stretched its legal authority to rescue Bear Stearns the previous March, and that doesn't appear possible in the Lehman case. Paulson, for his part, was spooked by the bad political reaction to the Bear bailout and doesn't want to repeat it if he doesn't have to. And so, Bernanke, believing that the markets might have had time to prepare their defenses against a Lehman collapse, concludes in consultation with Paulson and Geithner that there is no alternative to letting the firm fail. It was the biggest bankruptcy in U.S. history, and it triggered a near-global financial meltdown. And from that moment on, Wessel argues, Bernanke was determined never to be accused of doing too little again. "Whatever it takes" became his depression-beating mantra, and under Bernanke the Fed either carried out or supported some of the most sweeping government interventions ever. Today, the Treasury owns most of General Motors and part of Citigroup and Bank of America, while the Fed funds mortgage-backed securities and the commercial paper markets to the tune of hundreds of billions of dollars. The Fed's balance sheet stands at about $2 trillion, double what it was two years ago. Did it work? Wessel, the economics editor at the Wall Street Journal, has clearly had access to all the key players; his reporter's judgment is that Bernanke does deserve credit for preventing what he aptly dubs the Great Panic from morphing into something even worse. The interventions Bernanke spearheaded cost Americans hundreds of billions of dollars, much of which necessarily flowed into the coffers of Wall Street firms such as Goldman Sachs and AIG. But the relevant question is what Americans would have paid, now and in the future, if Bernanke and his colleagues had not done what they did. From that point of view, their actions look more cost-effective. Indeed, recent data suggest that the worst may be over. The U.S. economy's shrinkage decelerated to a rate of 1 percent between April and July. The Dow Jones Industrial Average is hovering near 9,200, up 2,700 points from its lowest point of the past 52 weeks. Even housing is finding a bottom. Unemployment is at 9.4 percent and will probably peak at around 10 percent -- bad, but far from 1930s levels. Last week, the central bank said it would allow a $300 billion program to buy Treasury bonds to lapse in October, a sign that it thinks the economy can stand on its own two feet. Still, as Wessel shows, the Fed in general and Bernanke in particular were hardly blameless in the buildup to the crisis. Under former Fed chairman Alan Greenspan, the central bank probably kept interest rates too low for too long in the wake of the 2001 recession, fueling the housing boom whose bust in the second half of 2007 brought on the Great Panic. The Fed's policy under Greenspan reflected the intellectual influence of none other than Bernanke, Wessel writes, whose fear of a downward spiral made him "a strong ally of Greenspan's in making the case that the Fed should keep interest rates low and say so publicly." Bernanke on that occasion was not necessarily well served by his lifelong focus on depression economics: When you're a hammer, every problem looks like a nail. A final verdict on Bernanke's performance will have to wait until the Fed finishes the job he started. If the U.S. economy has stopped sinking, it is because of the flood of artificial liquidity, released by Bernanke, that has borne it up. The Fed's next job will be the perfectly timed withdrawal of all that extra money, so as to avoid either roaring inflation or a relapse of deflation. Bernanke's term ends in 2010, and it's clear he is itching for a chance to finish what he began, even though President Obama will be sorely tempted to replace him with a Democrat such as Larry Summers, the White House economic adviser (and Bernanke's longtime intellectual competitor). A second term for Bernanke would be a good call for Obama if he wants to preserve continuity at the Fed, and if he concludes that Bernanke's belated but creditable actions merit a reward. But in a sense, the Fed's job for the next half-decade has already been determined by the course Bernanke chose in the past 18 months. Whoever takes the helm will face the greatest liquidity mop-up in history. And only if the Fed pulls it off can there be a happy ending to the Great Panic, whose scary beginning David Wessel has so effectively narrated. lanec@washpost.com
Copyright 2009, The Washington Post. All Rights Reserved.

Review
“...gives a revealing blow-by-blow account of the recent financial crisis”
—David Brooks, The New York Times

“...essential, lucid—and, it turns out, riveting—reading."
—Michiko Kakutani, The New York Times

“...a tale that’s nothing short of hair-raising..reveals in scary detail how unprepared politicians and regulators truly were...”
—Paul M Barrett, The New York Times Book Review

“Wessel delivers an engrossing account of Bernanke's improvisational responses to the worst financial crisis since the Great Depression.”
—Fortune Magazine

“... so far the most entertaining and most readable book on the financial crisis.”
—Tyler Cowen, marginalrevolution.com

“...persuasively told and richly reported... It will win awards and inspire copycats.”
—BusinessWeek

"David Wessel brings his deep knowledge of the Federal Reserve and U.S. politics and economics to a topic that will be studied by historians for decades to come...No one can understand what happened and what did not happen without reading this book."
–Joseph E. Stiglitz, winner of the Nobel Prize in economics and author of Globalization and its Discontents


From the Hardcover edition.

Review
“...gives a revealing blow-by-blow account of the recent financial crisis”
—David Brooks, The New York Times

“...essential, lucid—and, it turns out, riveting—reading."
—Michiko Kakutani, The New York Times

“...a tale that’s nothing short of hair-raising..reveals in scary detail how unprepared politicians and regulators truly were...”
—Paul M Barrett, The New York Times Book Review

“Wessel delivers an engrossing account of Bernanke's improvisational responses to the worst financial crisis since the Great Depression.”
—Fortune Magazine

“... so far the most entertaining and most readable book on the financial crisis.”
—Tyler Cowen, marginalrevolution.com

“...persuasively told and richly reported... It will win awards and inspire copycats.”
—BusinessWeek

"David Wessel brings his deep knowledge of the Federal Reserve and U.S. politics and economics to a topic that will be studied by historians for decades to come...No one can understand what happened and what did not happen without reading this book."
–Joseph E. Stiglitz, winner of the Nobel Prize in economics and author of Globalization and its Discontents

Customer Reviews

You Will Never Trust the Fed Again.
David Wessel says the Fed was bad when it didn't act or warn despite knowing calamity was at hand. He says their money-aggressiveness saved the financial sector, its leaders and preserved the bonus system. Salaries at the Fed are quite high and it is on a major hiring spree. This is the story of how power players quickly used trillions of public dollars to pay both winners and losers of the Great Derivatives Game.

According to Wessel, the raison d'être of the Fed is to regulate credit, to oversee fiat money - that if money were only Gold and Silver coin, we wouldn't have a central bank. The Fed uses Federal Reserve Notes as a substitute and that is the first key to understanding its power. That's how central banks got started, beginning in 17th century Britain.

We get historical background - the significance of the Panic of 1907 as well as The Great Depression in creating the Federal Reserve as it used to be. Then the book gets interesting starting when chairman Alan Greenspan became a celebrity and decisions were made that eventually helped lead to The Great Panic, with additional actors playing important roles.

The book indirectly leads to the conclusion that the Fed is the major beneficiary of the crisis, gaining powers to pour liquidity on the fire selectivity. Wessel calls the Fed the Fourth Branch of Government and warns it's not directly accountable to voters.

Wessel enumerates the people who created and benefited from what he calls "The Great Panic." He cites the Fed a 3-pronged contribution: keeping interest rates too low for too long; not using its regulatory powers; and Greenspan successfully advocating the view that markets self-regulate. He contends Greenspan believed the rich and powerful would keep the financial game going because they held such a strong interest in it. Greenspan later said in a type of admission that his world view was wrong.

The book gives the chronological order of the Fed's response to The Great Panic: it rescued Bear, not Lehman for lack of a Plan B when there was no buyer, the AIG fiasco and everything else. Wessel says the Fed, with its huge staff of PhD economists and insider connections, didn't understand AIG. Perhaps it is too disturbing to contemplate whether the Fed understood AIG's situation.

AIG had been doing unregulated derivative deals with major investment firms. Early in the previous administration, Congress drove through a law that forbade government to regulate derivatives. Before then, regulatory agencies weren't regulating derivatives, but the the financial industry feared the possibility of regulation. Then the derivatives game exploded, going from billions to hundreds of trillions - an absurd situation that made some people very rich, very quickly. Warren Buffett famously called derivatives "weapons of mass destruction." One might expect this to someday blow up, but public funds were not then expected to backstop those that couldn't pay up.

AIG derivatives traders wrote and sold losing derivatives. These derivatives matured years later. In return for taking the wrong side of the bet, they received cash up-front. Goldman Sachs and many investment banks from around the world bought into the scheme, which promised enormous returns that one could never get in a normal investment, but they had to pay AIG a fee for each contract.

AIG took the windfall cash receipts and paid them out as huge multi-million dollar bonuses. At the same time, the ratings agencies had no problem with AIG. We are told the Fed failed to understand that AIG would not have the money and that it would be of a magnitude beyond anything any corporation on earth could pay. Wessel seems overly diplomatic in his approach.

Due to the size of the matter and the possibility that government would not be able to contain the panic unless it took the position that it would not enforce unregulated derivative contracts, the Fed provided trillions quickly and without transparency. Taxpayer money immediately got routed through AIG and paid out to Goldman Sachs and others.

Time was of the essence and political leadership was lacking. The Fed moved decisively when the country was most exposed with a disengaged President at the end of his second term.

The book explains the political position of the Fed and Ben Bernanke, and the near inevitability of increased power residing in the Fed (Obama's plan) or conversely increasing transparency (Ron Paul's bill). The Fed is fighting against transparency. It even hired a former Enron employee as its lobbyist to Congress.

In Fed We Trust provides this lesson on how the Fed should respond to deflationary crises (panics): To save the country, you must save the existing financial system. To save the financial system, you can't help but bailout those sharing responsibility for the problem and you even utilize them to help fix the problem. It's unfair but Wessel warns against populist sentiments. Then you put better regulation in place. Further, you maintain foreign confidence in the Fed with special attention to China. This points to Ben Bernanke remaining in place to show continuity in both the Fed and the White House.

Surely Wessel has a point about not going overboard with populist sentiments. And we can't argue with the fact that without the Fed's supernumerary powers, our collapse could have become an immediate Depression unless the government had chosen not to enforce unregulated derivative contracts.

Quite apparently, something is terribly wrong. To end up debating how much power the Fed should have in the face of the favoritism it has shown demonstrates how far the nation has been knocked off course. Citizens need only visit a bank for a mortgage or business loan to verify that we are no beneficiaries of Fed largess. Soon there will be additional taxes to pay.

Ignore the hoopla: nothing earth-shattering offered
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.

Trivia in place of analysis
I am an academic economist doing research on the financial crisis. I read Wessel's book for details about the interventions by the Fed and Treasury in 2008 that I might not have encountered elsewhere. I was not expecting an academic treatise, and my negative review is not in any way related to the journalistic approach taken by the author.

Wessel is the economics editor at the Wall Street Journal and appears to have had a great deal of access to Bernanke and Geithner. His insider's perspective unfortunately produced very little insight. You can learn (p.115 AND p.192) that Bernanke used a "Polycom" speakerphone, but not that Hank Paulson and Richard Fuld were bitter rivals.

On a more substantive level, the book continually updates a "dashboard" with the Dow Jones average and the market cap of Citigroup. The success of each intervention is judged by the reaction of the stock market, generally within the day, to the policy. Does Wessel not remember that the Dow hit an all time high in October 2007, six months after subprime problems had emerged at Bear Stearns?

There is almost no discussion of the complex, leveraged financial instruments (e.g. CDOs and CDS) that amplified the crisis and made traditional monetary policy ineffective. A more thorough account would have also explored the regulatory failure of the Fed and federal government prior to the crisis.

On balance, the book is too narrow for someone just trying to go beyond the headlines and too superficial for those looking ahead to the next crisis.