Financial Freedom SG

I was reading this book, In Fed We Trust , for the past two weeks. While going through it, parts of it seemed almost like a mystery thriller unfolding. Except that it is real.

At this point in time, we are starting to have more books documenting the second worst meltdown in 200 years. With the benefit of hindsight, the authors writing these books can put their own opinions on how the people involved could have done something else or not do and avoided the worst of the meltdown.

To the author’s credit, this book does not do that. Instead the author, David Wessel presents all the different situations confronting the key players during what he calls the Great Panic and shows the stark choices, missteps, plus the brilliance of some of the financial minds in the United States Treasury Department and the Federal Reserve.

During one hell week in the aftermath of the collapse of Lehman Brothers, Bernanke, Geithner and Paulson did all these:

-married venerable brokerage house Merrill Lynch to Bank of America

-all but nationalised AIG, pumping US$85 billion of Fed money to keep it alive

-risked taxpayers’ money to halt a run on money market mutual funds no one ever considered guaranteed by the government

-administered last rites for Wall Street’s investment banking business model by converting Goldman Sachs and Morgan Stanley into Fed-protected bank-holding companies.

-pleaded with Congress to give the Treasury US$700 billion to prevent catastrophe, a request that ultimately led to a Republican administration taking a government ownership in the nation’s biggest banks.

All these happened during the one week when Lehman Brothers went bankrupt on the 14th of September 2009.

It also detailed the problem solving abilities of the key people in the continuous rescue efforts.

In his relentless, disciplined manner, Geithner posed these questions: Was there an alternative to the Fed lending money? Was there some way for the Fed to rally Wall Street to avoid an AIG default? Was the Fed confident it could contain the damage if AIG went under? Was there some way the Fed could buy AIG a few weeks with a short term loan? To each, Geithner answered: “No.”

Another thing that stuck in my mind was the dedication that they put into their jobs, having long discussions and analysis on Sundays and try to resolve key issues like the buyout of Bear Stearns before the markets opens in Asia. I lost track of how many Sundays that they came back in the book.

One example in the book illustrates this:

- Geithner worked till 12 midnight on Saturday night and scheduled a 6am conference call for the key staff involved in the rescue of Bear Stearns. He turned up early after sleeping just a few hours in a nearby hotel, called Bernanke and other key Fed staff at 4.45 am and made their decision at 7 am when most people were still asleep.

The humanity of the people in this book is illustrated through episodes like the recruitment of Tim Geithner for the post of the New York Fed President. Having doubts about Geithner’s competence because of his youthful looks and perceived lack of courage, a key reference came from Larry Summers, ex Treasury Secretary and Geithner’s ex boss, who stated, “Don’t worry about that. He’s the only person who ever worked with me who’d walk into my office and say to me, ‘Larry, on this one, you’re full of shit’”

I really enjoyed reading this book.