Alastair Darling was on the radio this week talking about how he got his first inkling of the financial crisis while on holiday in France. It was ten years ago and he’d walked into the local village to pick up some croissants and a copy of the FT and he read the news that BNP Paribas had frozen three funds with exposure to sub-prime mortgages. I was just looking back in my diary and it turns out I was on holiday in a French village as well — I have to admit that I didn’t read the FT and I had no suspicion of what was going to happen until many months later, but the crisis went on to have a big effect on everything around me.
I’ve just finished reading Ben Bernanke’s autobiography The Courage to Act and learned a huge amount about what happened and how central banking and financial regulation work. It’s not a short book and it does have quite a lot of detail about particular meetings and the way that decisions were made, but I loved all that. Bernanke took the job with a promise to make the Federal Reserve more transparent and he’s certainly done that by explaining its inner workings in this book.
Bernanke had a hard act to follow. Alan Greenspan had been Chairman of the Fed since the 1980s and was fairly universally respected. With hindsight of course he made some very big mistakes and allowed the buildup of toxic financial products that Bernanke had to help fix. Bernanke hints that Greenspan was a ‘bit of a character’ but doesn’t outright criticise him except to say that he resisted transparency in a way that Bernanke would then go on to reverse.
As Bernanke came to realise, 90% of his job was communication and giving other people confidence that everything would be ok and 10% actually involved action and doing things like providing money to stop ‘too interconnected to fail’ institutions from going under. Bernanke was very well prepared for what happened because of his academic career studying the Great Depression of the 20s and 30s.
One thing struck me about his approach though — underneath all the technical and political goings on he doesn’t mention ever personally questioning whether the American economy could fail. It wasn’t just that the stock market could crash — there were people who were worried that capitalism was teetering and it was time to get out. Bernanke never seems to have thought of that possibility though, which is telling.
The final section of the book contains his reflections on where we are now and he cites three reasons he’s optimistic about the future of the US. I’m guessing it was written before Trump came to power because all three reasons sound pretty flimsy now. The first is immigration, the second is technological innovation and the third is company building. I’m a huge fan of America but I wouldn’t hold out too much hope of those trends improving for the next four years.