““The magnitude of the panic at the height of the crisis was the most important reason for the severity of the Great Recession,” (Bernanke) writes. Without that panic, he argues, housing prices would not have fallen as far and economic activity would not have contracted as sharply.”, Binyamin Appelbaum, NYT
October 5, 2015, Binyamin Appelbaum, The New York Times
In Book, Bernanke Pins Weak Recovery on Congress
Ben Bernanke, former chairman of the Federal Reserve, has written a memoir, “The Courage to Act: A Memoir of a Crisis and Its Aftermath.” Credit Alex Wong/Getty Images
Mr. Bernanke, who left the Fed in January 2014 after eight years as chairman, says the Fed’s response to the crisis was bold and effective but insufficient.
“I often said that monetary policy was not a panacea — we needed Congress to do its part,” he says. “After the crisis calmed, that help was not forthcoming.”
Mr. Bernanke’s memoir, “The Courage to Act: A Memoir of a Crisis and Its Aftermath,” is mostly an account of the Fed’s response to what he has called the worst financial crisis in American history, though it begins with his family history and his journey from a small town in South Carolina to a job as the world’s most powerful economic policy maker.
The Fed under Mr. Bernanke is widely credited with arresting the 2008 crisis in time to stop a collapse of the nation’s financial system. But its failure to prevent the crisis from erupting and the limited success of its postcrisis stimulus campaign have been criticized by some economists.
As an academic economist, Mr. Bernanke argued that downturns can be exacerbated by a “financial accelerator” effect. In the Great Depression, for instance, thousands of bank failures left people and businesses unable to borrow, delaying recovery.
Mr. Bernanke writes that the 2008 crisis is best understood as a traditional panic with some new characters: not just depositors lined up outside banks, but also other kinds of investors scrambling to get money out of other kinds of financial firms.
“The magnitude of the panic at the height of the crisis was the most important reason for the severity of the Great Recession,” he writes. Without that panic, he argues, housing prices would not have fallen as far and economic activity would not have contracted as sharply.
Because Mr. Bernanke thought he recognized the problem, he thought he knew the solution too. The book begins, “In all crises, there are those who act and those who fear to act.” Under Mr. Bernanke’s leadership, the Fed pumped trillions of dollars into the financial system.
Mr. Bernanke’s narrative underscores the ad hoc nature of this effort. In one instance, Mr. Bernanke and Timothy F. Geithner, the Federal Reserve Bank of New York president at the time, agreed by email that a new $10 billion-a-week lending program was not big enough.
“The number seemed small to me,” Mr. Bernanke writes. “I emailed Geithner, and he agreed. A half-hour later, we were at $25 billion a week, or $100 billion for the month of March.”
In a few instances, Mr. Bernanke also acknowledges, the Fed could have done more. He writes that the decision not to lower rates in September 2008, immediately after the collapse of Lehman Brothers, “was certainly a mistake.” The Fed’s benchmark rate then stood at 2 percent; by the end of the year, it had been cut nearly to zero.
But Mr. Bernanke emphasizes that the Fed was legally constrained from taking some steps. It could not find a legal way to save Lehman Brothers, he argues in the book, nor could it prevent the American International Group, the insurance company, from using bailout funds to repay creditors, including Goldman Sachs and JPMorgan Chase. (Not everyone agrees with those assessments.)
He also says the Fed’s stimulus campaign after the crisis was sometimes constrained by the hesitations of other Fed officials about the consequences of such large and untested measures.
His sharpest words, however, are reserved for Congress. Mr. Bernanke, a former economics professor at Princeton, often seemed to suffer through his appearances before lawmakers; he writes of those encounters, “It was inevitable that they would ask questions for all sorts of purposes, but rarely because they were curious about the answer.”
He also expresses puzzlement that politicians who were friendly in person would sometimes turn on him in public settings. “I could never get used to the Jekyll-and-Hyde nature of politicians,” he writes. Most of all, however, he chastises Congress for damaging the economy, citing several episodes, including the 2013 government shutdown.
“I also felt frustrated that fiscal policy makers, far from helping the economy, appeared to be actively working to hinder it,” Mr. Bernanke says.
Mr. Bernanke writes that he developed a thick skin at the Fed, but he gratefully recalls some rare instances of support during the heat of the crisis, including kind words from the Fed barber (known as the “Hairman of the Board”) and a note from the baseball statistician Bill James.
In the book, as in previous remarks, Mr. Bernanke acknowledges precrisis failings, including lax regulation of mortgage lending. As a member of the Fed committee responsible for consumer protection issues in the early 2000s — before becoming chairman — Mr. Bernanke heard some of the warnings repeatedly delivered to the Fed.
He says that he and other officials did not want to restrict the availability of loans that might be suitable for some borrowers, so they erred on the side of expecting people to protect themselves. He has since come to the conclusion, he writes, that “like flammable pajamas, some products should just be kept out of the marketplace.”
Mr. Bernanke remains an optimist about the American economy. He writes in the closing chapter that in comparison with other developed nations, America remains relatively young and continues to invest heavily in innovation and reward entrepreneurship.
“We can’t say exactly when, but eventually the U.S. economy will be growing more normally,” he says. “Despite undeniable problems, I see the United States as one of the most attractive places to live, work and invest over the next few decades.”
A version of this article appears in print on October 6, 2015, on page B4 of the New York edition with the headline: Bernanke Blames Capitol Hill for Lagging Recovery