Enter your email address:

Delivered by FeedBurner

Book Review- Bernanke’s Test


bernanketest I am at page 223 of the book, ‘Bernanke's Test’ which stands at a rather thin total of 246 pages.

It looks at how the recent financial crisis unfolded at the actions of the key people in charge.

Also, there is an attempt to look at the role of the previous Fed Chairman, Alan Greenspan, in all this.

With the memory of the crisis still fresh in my mind, it brought out the stark choices that the people in charge had.

We are fortunate that Ben Bernanke was chosen to take over from Alan Greenspan and clear up the mess that the lack of transparency, regulatory oversight and pure greed had wrought.

He studied the Great Depression as a scholar and also looked at the Japanese lost decade where deflation reared its ugly head after asset prices like housing and equities crashed during the early 1990s. From studying this, he knew what were the policies to use to mitigate and stop the recession and financial crisis from conflagrating to a full blown Great Depression 2.0

I quote “Bernanke’s intimate knowledge of the Great Depression and Japan’s ‘lost decade’ gave him a perspective that was unique in Washington. Both historical cases taught the lesson that quick and decisive responses along the whole spectrum of policy instruments were necessary to avoid a very deep recession and/or a period of prolonged stagflation.”

So Bernanke together with Hank Paulson, Tim Geithner and members of the Fed did this:

  • Cut its policy rates by 75 basis points at one go, a record, on 22 January 2008
  • Pump massive amounts of liquidity to the banking systems, billions and billions
  • Prop up Fannie Mae and Freddie Mac by nationalising them and pumping billions
  • Pump billions (again) to AIA ($85 billion + $38 billion + $25 billion), Citibank and a whole host of banks
  • Coming up with a $700 billion TARP

At the moment, we are looking at the culpability of Goldman Sachs in exacerbating the whole crisis. They signifies the amongst the worst offenders if they are found guilty of the charges initiated by the Securities Exchange Commission (SEC). If they aren’t, their name will likely be mired in mud after all these revelations.

Bernanke’s name, however, will likely be revered after the whole episode has been clearly analyzed in later generations as the economists, writers and historians of that time have the benefit of hindsight.

To paraphrase Winston Churchill, “Never has so much been owed by so many to so few.”

Related Posts

Bookmark and Share


Post a Comment


The information contained in this blog is prepared from data believed to be correct and reliable at the time of publication of this report. The authors do not make any guarantee or representation as to the adequacy, accuracy, completeness, reliability of the information contained herein. Neither the authors or any affiliates or related persons shall be liable for any consequences (direct or indirect losses, loss of profits and damages) of any
reliance placed on information provided in the blog.

Shares and financial instruments illustrated in this blog can go down sharply or in certain instruments suffer total loss on the initial investments. Investors are advised to make their own judgment on the information provided and consult their own financial advisors or consultants as to the suitability of the products illustrated to their particular financial needs and objectives before acting on any information contained herein in this blog.