A fast-paced, behind-closed-doors account of the Federal Reserve’s decision making during the 2008 financial crisis, showing how Fed policymakers overcame their own assumptions to contain the disaster.
The financial crisis of 2008 led to the collapse of several major banks and thrust the US economy into the deepest recession since the Great Depression. The Federal Reserve was the agency most responsible for maintaining the nation’s economic stability. And the Fed’s Open Market Committee was a twelve-member body at the epicenter, making sense of the unfolding crisis and fashioning a response. This is the story of how they failed, learned, and staved off catastrophe.
Drawing on verbatim transcripts of the committee’s closed-door meetings, Mitchel Abolafia puts readers in the room with the Federal Reserve’s senior policymaking group. Abolafia uncovers what the Fed’s policymakers knew before, during, and after the collapse. He explores how their biases and intellectual commitments both helped and hindered as they made sense of the emergency. In an original contribution to the sociology of finance, Stewards of the Market examines the social and cultural factors that shaped the Fed’s response, one marked by missed cues and analytic failures but also by successful improvisations and innovations.
Ideas, traditions, and power all played their roles in the Fed’s handling of the crisis. In particular, Abolafia demonstrates that the Fed’s adherence to conflicting theories of self-correcting markets contributed to the committee’s doubts and decisions. A vivid portrait of the world’s most powerful central bank in a moment of high stakes, Stewards of the Market is rich with insights for the next financial downturn.
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About the Author
Mitchel Y. Abolafia is Professor at the Rockefeller College of Public Affairs and Policy, University at Albany, State University of New York. He has taught at Cornell’s Johnson School of Management and MIT’s Sloan School of Management and is the author of Making Markets: Opportunism and Restraint on Wall Street.
Table of Contents
Introduction: Making Sense of a Crisis 1
1 No Crystal Ball: August 2007 11
2 Textures of Doubt: September-December 2007 30
3 A Learning Moment? January 2008 49
4 Improvising in a Liquidity Crisis: March 2008 71
5 Contested Frames / Competing Logics: April-August 2008 96
6 Accounting for a Legitimacy Crisis: September 2008 115
7 Learning after Lehman: September-December 2008 129
8 The Pathos and Irony of Technocratic Control 153
Appendix A Members of the Federal Open Market Committee, August 2007-December 2008 173
Appendix B A Note on Methods 177