The dreaded flu going around has struck me, so I’ve been paging through a book it’s easy to hold while lying in bed feeling wan. It’s The Federal Reserve and the Financial Crisis, some lectures given by Ben Bernanke at George Washington University last year.
The Federal Reserve and the Financial Crisis
I won’t pretend to be alert enough to have absorbed every nuance, but the Fed Chairman’s overall message is clear: of course we might have got some details wrong but we did exactly what it says on the Fed tin in acting as a lender of last resort to the financial system and calming the panic. What’s more, if you look over the long span of history (he being the author of Essays on the Great Depression), the loss of output subsequent to the crisis is clear but the US economy will sooner or later get back on its long term growth trend.
Essays on the Great Depression
No doubt it’s the combined effect of the bugs wreaking havoc on my well-being and the peculiarly horrible medicine I’ve been taking, but I’m much less sure the crisis is fixed. I’m not confident the same kind of crisis could not occur again tomorrow – the banks are still too big, too intertwined, too leveraged with – as Admati and Hellwig point out in their superb new book, The Bankers’ New Clothes – far too little equity capital. At any rate, I don’t want to rely entirely on the forces of history. I think the Fed has indeed done a decent job in the face of the imminent 2008 meltdown; but in making the comparison with the Fed’s historical role as lender of last resort, the lectures lack a sense of the really fundamental questions about the present financial system.
The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It