Review Essay

Big Ben

Bernanke, the Fed, and the Real Lessons of the Crisis

In This Review

The Courage to Act: A Memoir of a Crisis and Its Aftermath
The Courage to Act: A Memoir of a Crisis and Its Aftermath
By Ben S. Bernanke
W. W. Norton & Company, 2015, 624 pp. Purchase

The biggest revelation offered by Ben Bernanke’s memoir of his time as chair of the U.S. Federal Reserve is just how much the public, the media, and especially elected officials have misunderstood the real lessons of the 2008 financial crisis and the subsequent Great Recession—events that defined Bernanke’s tenure, which began in 2006 and ended in 2014. Bernanke spends much of the book justifying what should be self-evident: that the risk of a second Great Depression called for precisely the sort of active monetary policy that he and his colleagues at the Fed pursued.

As Bernanke makes clear, the crisis was a traditional financial panic of the sort that led to the creation of the Fed in the first place. Bernanke and his colleagues responded correctly to the challenge, rapidly cutting interest rates to zero and then purchasing assets, primarily U.S. Treasury bonds, on a large scale, a practice known as “quantitative easing.” Both steps aided the U.S. economy by increasing credit availability, raising inflation expectations, encouraging investors to repurchase risky securities they had sold off during the initial panic, and generally restoring confidence.

Anyone who reads Bernanke's memoir in good faith will be impressed by the depth of Bernanke’s analysis and insight.

Unfortunately, some pundits and some radical members of the U.S. Congress have distorted that fairly straightforward story, contributing to widespread but unjustified mistrust in the Fed and leading to the imposition of legal and political constraints on the central bank that will make it much harder to save the global economy the next time a financial crisis hits. Just as troubling, misguided attacks on activist monetary policy have distracted attention from the important question of how and why the financial system became so fragile in the first place. Meanwhile, the Fed’s unwillingness and inability to preempt the panic before it spread remain unaddressed. As a result, the next time a financial crash starts, is it likely to get out of control even

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