The Federal Reserve and the Financial Crisis

by Ben S. Bernanke

Overview

Ben Bernanke's history of the Federal Reserve and its response to the 2008 financial crisis

In 2012, Ben Bernanke, chairman of the U.S. Federal Reserve, gave a series of lectures about the Federal Reserve and the 2008 financial crisis, as part of a course at George Washington University on the role of the Federal Reserve in the economy. In this unusual event, Bernanke revealed important background and insights into the central bank's crucial actions during the worst financial crisis since the Great Depression. Taken directly from these historic talks, The Federal Reserve and the Financial Crisis offers insight into the guiding principles behind the Fed's activities and the lessons to be learned from its handling of recent economic challenges.

Bernanke traces the origins of the Federal Reserve, from its inception in 1914 through the Second World War, and he looks at the Fed post-1945, when it began operating independently from other governmental departments such as the Treasury. During this time the Fed grappled with episodes of high inflation, finally tamed by then-chairman Paul Volcker. Bernanke also explores the period under his predecessor, Alan Greenspan, known as the Great Moderation. Bernanke then delves into the Fed's reaction to the recent financial crisis, focusing on the central bank's role as the lender of last resort and discussing efforts that injected liquidity into the banking system. Bernanke points out that monetary policies alone cannot revive the economy, and he describes ongoing structural and regulatory problems that need to be addressed.

Providing first-hand knowledge of how problems in the financial system were handled, The Federal Reserve and the Financial Crisis will long be studied by those interested in this critical moment in history.

Product Details

ISBN-13:	9780691165578
Publisher:	Princeton University Press
Publication date:	02/22/2015
Pages:	144
Product dimensions:	5.40(w) x 8.40(h) x 0.50(d)

About the Author

Ben S. Bernanke was chair of the U.S. Federal Reserve from 2006 to 2014 and was awarded the Nobel Prize in economics in 2022. He is a Distinguished Senior Fellow in Economic Studies at the Brookings Institution. His many books include Essays on the Great Depression and Inflation Targeting (both Princeton).

Table of Contents

Publisher's Note vii
Lecture 1 - Origins and Mission of the Federal Reserve 1
Lecture 2 - The Federal Reserve after World War II 29
Lecture 3 - The Federal Reserve's Response to the Financial Crisis 64
Lecture 4 - The Aftermath of the Crisis 97
Index 131

What People are Saying About This

From the Publisher

"In this well-organized book, Ben Bernanke tells the story of the Fed from its founding to the recent financial crisis. Bernanke's rendering is coherent and compelling."—Barry Eichengreen, author of Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System

"It is rare indeed to find a Fed chairman looking back and explaining the Fed's actions. In this valuable book, Ben Bernanke argues strongly that the Fed's decisions during the financial crisis were consistent with long-standing central banking practices. His account is an important part of the historical record."—Alan Blinder, Princeton University

Editorial Reviews

"Providing first-hand knowledge of how problems in the financial system were handled, The Federal Reserve and the Financial Crisis will long be studied by those interested in this critical moment in history."

PolitCommerce

One of China Business News’ Financial Books of the Year for 2014

From the Publisher

In this edited collection of lectures (originally delivered at the George Washington University in March 2012), Bernanke (Essays on the Great Depression) portrays the U.S. Federal Reserve’s actions during the 2008 financial crisis as consistent with the role of central banks, and as a series of unfortunately necessary improvisations. The most glaring issue that emerges is the mismatch between regulatory agencies, still operating with a Depression-era mindset, and today’s complex financial system. This situation was exacerbated leading up to the 2008 crisis by the undercapitalization of agencies such as Freddie Mac and Fannie Mae, and a flurry of innovative mortgage practices. Bernanke’s dispassionate, academic tone throughout contrasts, no doubt deliberately, with the sheer terror manifested by the media at the time. Bernanke offers no crystal-ball vision, noting dourly, “financial crises will always be with us.” The lessons learned include the virtues of making the Fed more transparent about its goals; the benefits of international coordination; and the need to end the “too-big-to-fail” dilemma. The sophisticated economist probably will find these speeches lacking in both financial details and theory; the more general reader probably will be thankful for this approach. Anyone interested in a primer on recent financial history will likely find Bernanke’s book to be worthwhile reading. 1 halftone, 39 line illus. (Mar.)

Publishers Weekly

"Providing first-hand knowledge of how problems in the financial system were handled, The Federal Reserve and the Financial Crisis will long be studied by those interested in this critical moment in history."

World Book Industry

"In March 2012, Ben Bernanke, chairman of the US Federal Reserve, gave four guest lectures at George Washington University. This slim volume—at only 130 pages, comfortably finished in the time it takes to watch a TV movie—comprises those lectures apparently almost verbatim, with a few astute audience questions and answers at the end of each. . . . This is easy reading."

Financial World

"[The Federal Reserve and the Financial Crisis] is a helpful primer on modern central banking by one of its preeminent practitioners."

Foreign Affairs

This book is, in short, not just an excellent guide to the Fed and its response to the financial crisis, but also constitutes an important document of its time, a reflection that central banks can do some very effective short-term anti-crisis measures, but they cannot be miracle workers.

Central Banking Journal - Harold James

[F]or those interested in why we have central banks, what led to the 2008 financial crisis and how the nation's top officials reacted, there isn't a better primer. . . . This is no boring textbook, despite the occasional chart. Bernanke presents a clear and engaging narrative of the economic history of the United States, while also tackling a few of the perennial anti-Fed bugaboos. . . . One of the book's most important achievements is to place the Fed's extraordinary interventions during the crisis—including the emergency lending of $1.2 trillion to the financial industry—in context.

Roll Call - Ben Weyl

[T]his is a useful and highly approachable take on the history of central banking and the recent financial crisis. It's worth a read, if only to get a first-person narrative from one of the most important figures in global capital markets.

Washington Times - Carrie Sheffield

The Federal Reserve and the Financial Crisis . . . provides a useful tutorial on the workings of an institution in its most difficult hour. For that reason alone, it makes an important contribution to the historical record.

Financial Analysts Journal - Marc L. Ross

Readers who are not fans of the Fed chairman and his Keynesian, fiat-money policies should find as much of interest here as those who are; it's the sort of primary-source book that investors will scrutinize, politicians will seize on, pundits will plunder and generations of scholars will analyse. . . . [The Federal Reserve and the Financial Crisis] brings what Bernanke said in the classroom to a vastly larger audience; now, it's up to the readers of varying political and economic persuasions to make what they will of his behind-the-scenes account.

Pittsburgh Tribune-Review - Alan Wallace

The lectures are consistently lucid and informal . . . and above all intelligent and interesting. . . . [I]t would be difficult to find a better short and not very technical account of what went wrong, and of how the Fed (and the Treasury) managed to keep it from getting much worse.

New Republic - Robert Solow

In March 2012, Federal Reserve chairman Bernanke gave four lectures to undergraduates on the origins and role of the Fed. His texts, charts, and answers to student questions are contained in this slim volume. Bernanke addresses the value of a central bank as an economic stabilizer through its powers as regulator, influencer of interest rates, and lender of last resort. After giving a brief history of the Fed, he describes the financial environment leading up to the 2008 crisis. He talks about how the Fed in concert with the U.S. Treasury and other central banks implemented policies first to dampen the panic, then to strengthen the financial system, and finally to support the economic recovery. He stresses the openness of Fed actions subsequent to 2008 and their consistency with longstanding practices. Bernanke is careful in his wording and presents no revelations; the lectures have been accessible over the Internet. VERDICT This important book deserves to be read widely both because Bernanke admirably explains the Fed and its actions and because his authorship provides a window into his thinking as one of the world's most powerful financial figures. Former Fed governor Alan S. Blinder (economics, Princeton Univ.) also examines the crisis but with sharper criticism in After the Music Stopped (Jan. 2013).—Lawrence Maxted, Gannon Univ. Lib., Erie, PA

Library Journal

Federal Reserve Chairman Bernanke (Essays on the Great Depression, 2000, etc.) presents his views on the Federal Reserve System, central banking and the financial crisis in four lectures given to students during the course of 2012. The author examines what the Federal Reserve was intended to accomplish, how it performed its statutory task as it evolved over time and the special functions of the lender-of-last-resort that have been called upon during the financial crisis. These lectures provide a useful primer on matters not often presented in such a comprehensive or unequivocal way. Bernanke's reputation is often identified with his expertise on the Great Depression. Here, he presents himself differently, as a practitioner of central banking. Thus, his views on the Federal Reserve called on by statute "to serve as a lender of last resort and to try to mitigate the panics banks were experiencing every few years" come into sharp relief relative to his presentation of what has gone amiss in the financial sector. He argues that the regulatory structure of finance failed to keep up with the structure of financial institutions. The private sector took advantage, using weaknesses in risk management, the increasing complexity of financial transactions and the reliance on short-term funding and leverage to do so. Bernanke views the subprime mortgage crisis as the lesser part of a much larger threat to the global financial system, and he shows how AIG's triple A credit rating was used to backstop these developments through default swaps. "In our estimation," he told the students, "the failure of AIG would have been basically the end." A great introduction to the functioning of central banking for general readers.

Kirkus Reviews