Review of Bernanke’s "The courage to act" by Paul F. Ross
Economic events of the magnitude of the 2007-2009 world recession affect everyone’s lives worldwide, actually affecting generations of lives, and occur only a few times in a century. In this instance, two or three American leaders in finance in federal government roles (Bernanke, Geithner, Paulson), backed up by active, informed, energetic staffs, the support of two US Presidents, and the cooperation of ____________________________________________________________________________________
Bernanke, Ben S. "The courage to act: A memoir of a crisis and its aftermath" 2015, W. W. Norton & Company, New York NY, xix + 610 pages
____________________________________________________________________________________
central bankers in several nations, acted in innovative ways that avoided the collapse of the US and world economies illustrated most recently by the 1929-1933 collapse of American and world economies in the Great Depression. The 2007 – 2009 rescue was accomplished despite limits in authority prescribed by US law and regulations as accumulated in over a century, the prescriptions intended to protect economies and their actors from self injurious practices. Bernanke’s memoir of the 2007-2009 economic crisis and its aftermath, seen from his position as chairman of the US central bank, the Federal Reserve, needs to be reading fare for every educated leader in the world. It is a remarkably clear description of economic events in language every thoughtful person can understand.
Bernanke describes his youth and preparation for serving as chair of the US Federal Reserve in 100 pages, recalls events in the first four years of his duties as chair in 300 pages, and recalls events in the second four years of his duties in 100 pages. See the key events and their dates in Table 1. Clearly his account is a memoir about those eight years as chair of the US Federal Reserve, not an autobiography. The lines of Table 1 list all the major financial events we readers “experienced” reading our newspapers from 2007 to 2014 while the page count conveys the emphasis that Bernanke assigns to each event. Several book-length accounts have been published describing and explaining the events of 2007-2009 and later, Sorkin (2009), Paulson (2010), Lowenstein (2010), Morgenson and Rosner (2011), Blinder (2013), Geithner (2014), and now Bernanke (2015) among them. My reviews of each of these books – except the Paulson account which I have not read – can be found on Amazon.com.
This reader’s view is that the US and the world are lucky to have had the leaders of the US financial agencies, especially the US Treasury Secretaries and the US Federal Reserve, in place at the time of these events. Their insights leading to the use of not previously tried methods, their cooperation with and trust in each other, their shared New Keynesian understanding about how to rekindle failed financial and economic functioning, their dedication to winning consensus with respect to next steps, their insights about the importance of communicating clearly the essential goals and processes leading to those goals, and their understanding of the global effects of events in the US and elsewhere were key contributions to avoiding (so far … for the US) the deflation and economic stagnation that occurred in the 1929-1933 crisis and the subsequent Great Depression. While reading Bernanke’s account in 2015, it is ever so clear that the US and world have not yet accomplished fully functioning economies. The world’s economies are still suffering the after effects of the 2007-2009 downturn along with continuing challenges following from an aging world population, declining birth rates, and the stresses of migrations motivated by war. The debts incurred as governments have taken on their roles in stabilizing financial systems and economies remain to be handled. Still, from this reader’s perspective, Bernanke, Geithner, Paulson, and many other key players in the events described by Bernanke win admiration and thanks for helping the US and the world avoid the long sad consequences experienced in 1929-1933 and later.
Table 1
Key events in the 2007-2009 economic crisis
Page Date Event
1 Bernanke describes his background/preparation for the USFed chair
116 1 Feb 2006 George W. Bush names Ben Bernanke as chairman of the USFed
133 9 Aug 2007 BNP Paribas barred withdrawals from three investment funds
190 9 Jan 2008 Bank of America buys Countrywide Financial
217 14 Mar 2008 USFed lends to J.P.Morgan Chase and it buys Bear Stearns
245 5 Sep 2008 Fannie Mae and Freddie Mac taken into US conservatorship
268 15 Sep 2008 Bank of America buys Merrill Lynch
269 15 Sep 2008 Lehman Brothers declares bankruptcy
284 16 Sep 2008 USFed lends to AIG to avoid its failure
300 18 Sep 2008 announce USFed currency swap lines with European central banks
310 19 Sep 2008 GoldmanSachs-Morgan Stanley made “bank holding companies”
323 25 Sep 2008 Washington Mutual is purchased by J.P.Morgan Chase
335 3 Oct 2008 Troubled Asset Relief Program (TARP) signed by President Bush
348 8 Oct 2008 USFed and central banks elsewhere cut interbank rate to 1.5%
332 9 Oct 2008 Wells Fargo purchase of Wachovia approved by USFed
353 13 Oct 2008 Secretary Paulson asking, nine good-bank CEOs accept TARP loans
356 4 Nov 2008 Barach Obama wins US presidency over John McCain
418 Dec 2008 USFed purchased Fannie Mae and Freddie Mac debt
397 Dec 2008 TARP funds loaned to GMAC, General Motors' financial arm
418 Jan 2009 USFed purchased mortgage-backed securities – Quantitative Easing #1
383 20 Jan 2009 Barach Obama sworn in as US President
392 Jan 2009 Geithner becomes Secretary of the Treasury
394 10 Feb 2009 Geithner starts “stress test” for banks
422 1 Mar 2009 USFed increases AIG support
422 2 Mar 2009 AIG announces $62 B 4th quarter loss bringing year’s loss to $99 B
422 15 Mar 2009 $165 M bonuses to executives in AIG Financial Products Division
429 25 Aug 2009 Barach Obama names Ben Bernanke for second term at USFed
476 Oct 2009 Greece reports its debt considerably higher than previously disclosed
479 23 Apr 2010 Greece asks European Union for help for its debt situation
490 Nov 2010 USFed announced Quantitative Easing #2
531 Sep 2012 USFed announced QE #3, open ended, half buying Mortg. Backed Sec.
562 30 Jan 2014 Ben Bernanke departs US Fed chair
563 3 Feb 2014 Janet Yellen becomes US Fed chair
579 end of text
This memoir is a fascinating story about Bernanke’s life events leading to his chairmanship of the USFed, the issues faced and actions taken to manage the US and world economies between 2006 and 2014, the influences affecting these economies both within and outside the control of the “monetary” [USFed and other regulatory agencies’ influence on money supply] and “fiscal” [US legislative and executive branches’ influence on taxes and government spending] responsibilities of government, and the look ‘behind closed doors’ as USFed policy is developed … a step in the direction of transparency that Bernanke is convinced is needed and is so effectively enhanced by him as compared with US historical precedents and central bank practices today in other countries.
While the reader can expect some self-justification to influence the stories of any author who was a key player in the events (Bernanke, Geithner, Paulson), it is this reader’s impression that Bernanke uses more words in clear defense of his actions and in describing the pain of being the focus of frequent criticism – what public servant, what leader, has not felt that pain !!! – than I recall from Geithner, for example. Surely we’re seeing individual differences in toleration for the criticism that comes to those exercising publicly visible responsibilities.
Bernanke’s sources are not cited in the style used in conventional histories. Rather he points to active, ongoing, online data sources available from a variety of government agencies … very valuable to those wishing to push what they’ve learned from Bernanke into future tracking of financial matters and USFed activities. The reader is left to imagine that Bernanke used his personal journal or diary, his personal email archive, and probably some discussions with others in his personal and professional life space to recall and describe accurately what we read.
That Bernanke realizes the importance and power of communicating the current circumstances and current direction of policy actions to many audiences simply suffuses this account. ‘Should we use this phrase, or that phrase?’ in our press release or speech seems to have been the preoccupation of Bernanke himself and of whole committees. All of us know of the famous volatility of the stock markets. We also know that the radio-TV and print analysts immediately – an hour later, a day later – report to us the specific cause of the rise, or the fall, of the Dow Jones or the price of a particular stock. Have you ever, like me, thought this is pure story telling, absolutely without foundation? Bernanke and the FOMC (Federal Open Market Committee, the USFed’s policy-guiding group) believe the importance of ‘the word, the phrase’ and spend extraordinary effort and time to ‘get it right.’ As a behavioral scientist, having done much data collection depending for its insights and accuracy on the wide understanding and use of particular words, I know this Bernanke-FOMC viewpoint about the precise meaning/connotation of particular words to be (a) widely held, (b) measurable for its influence although it remains unmeasured, (c) largely false, and (d) an extraordinarily ‘thin reed’ with which to accomplish the leverage for guiding national and worldwide decision-making. The longstanding habit of trying to find meaning where there is none is characterized beautifully in a story Bernanke repeats (p 546). French diplomat Talleyrand and Prince Metternich of Austria were arch rivals of the early nineteenth century. When Talleyrand died, Metternich was reported to have said, “I wonder what he meant by that?”
Kahneman (2011), psychologist and behavioral economist at Princeton, assembled research showing that decisions made using past experience and trusted habits (“thinking fast”) are often less fruitful with respect to outcomes achieved than decisions based on thoughtfully assembled information about the issues at hand (“thinking slow”). Appreciating this truth, this reader entered this read understanding that Bernanke is a ‘numbers man,’ ‘solidly grounded in empirical research,’ and very likely to have been tying USFed decisions to carefully assembled empirical data and forecasts using statistical-mathematical models being fed steady streams of carefully observed data describing many variables. My expectation was not upheld by this account. While Bernanke frequently references the dedicated and brilliant staff work done at the USFed and Treasury (work that must have its parallels in the government halls of the Congressional Budget Office, the Bureau of Labor Statistics, and the Federal Deposit Insurance Corporation as well as more than a few private organizations like Goldman Sachs and academic organizations like MIT and Princeton), he does not describe that work or its data feedstock. One cannot even be sure from this read that such data gathering and statistical and mathematical modeling of the national economy and the world economies exists. Surely it must. The USFed does include forecasts of unemployment and inflation in some of its representatives’ speeches and its press releases, forecasts made using one or another technology … hopefully something better than an averaged forecast from all members of the American Economic Association or the American Econometric Society. If meteorologists can build statistical models of the atmosphere and predict weather (albeit mostly for only short times into the future like a few days or weeks and with their fair share of small errors), then economists and other behavioral scientists must be building econometric models. Bernanke does note in this account that ‘economists are criticized for not being able to predict the future.’ Bernanke accepts that criticism as valid. But this reader – this behavioral scientist who has built (and seen the products of others’ work producing) more than a few statistical-mathematical models grounded in data describing many variables and predicting future behavior for individuals (performance on the job in the next few years; performance in college in the next one to four years; career success as measured forty years from the time of data collection; purchasing behavior as expressed in the next hour or two, etc.) – knows that predicting human behavior is possible at levels of accuracy that have enormous practical value. These capabilities are not being widely used because it is widely believed by well educated people (even world-leading economists like Bernanke) that ‘predicting human behavior’ cannot be done. Because of that widely-believed falsehood, organizational leaders are unwilling to try decision-making based on these predictions … and research funding for behavior-predicting models and behavioral science in general is minimal to non-existent (when compared with other sciences and with the return on investment the behavioral sciences can deliver). I have spent the last few years (as a retiree) doing research for various clients with the intent of helping them and, at the same time, maintaining and satisfying my intellectual needs, research financed wholly by me, research that then has great difficulty getting published in visible places because it comes from a non-academician, someone who obviously “cannot be trusted” since “non-academic scientists always produce research setting forth conclusions that support their client’s wishes.” Given what this reader knows, his expectations and hopes for this account by Bernanke about how the financial systems of our economy are managed were severely short-changed, my hopes ‘left hanging in a tree and all but out of reach.’
It is useful to sketch the outlines of a computer-based world economic model. The model would be based on (a) 100 countries, each described by (b) 80 variables with each variable being (c) updated quarterly and (d) corrected [re-estimated] only once and not later than twelve months after the original report. The “100 countries” falls short of the 200+ countries recognized by the United Nations, but many nations may not have in place the data collection means for joining a world economic modeling effort and other countries’ governments may elect to be non-participants. “100 countries and 80 variables” is not an ideal ratio from a research-designer’s or statistician’s point of view, but experience suggests it will work and it is reasonable to hope the ratio will change in a few years in the direction of 200 :: 80 or 200 :: 100. (d) Every country (primary user) and its citizens would have access to the current statistical-mathematical model and the most recent data feeds from all countries along with all prior data feeds. (e) Primary-user countries would gather data for their own country at the primary-user country’s own expense, supplying data to the aggregation center following the data gathering profiles specified by the current model’s parameters and schedules. (f) Private users located in participating primary-user countries would have cost free access to the model and its historical database. (g) Any user could develop output estimates (forecasts) for individual nations and for aggregates of nations. For example, forecasts of the Gross Domestic Product for the US for the next ten years, school-age population growth for Ecuador for the next twenty years, intra-Euro-zone trading for the next ten years, and aggregates describing the historical past and the forecasted future for the G7 over a two-decade span could be generated. (h) There would be a contractor, say to the United Nations, that assembled input data flow and maintained/serviced/updated the current model from which current data and model updates would be available at no cost to all primary-user nations. (i) Research designing and developing the acquisition of data being fed to the model, the mathematical-statistical model itself, the software processing those data, and current operations at the world-aggregation center for the model would be supported by tax revenues gathered/supplied by the primary users in accordance with their ability to pay.
With this “model” in operation, users would not be wondering what the “real meaning” is for particular words in Chairman Yellen’s report from yesterday’s meeting of the US Federal Open Market Committee. Instead, the user would examine the data inputs and outputs for that part of the model to which Chairman Yellen’s remarks refer, gather his/her own sense of the meaning of what is there, or vary the input and develop one’s own set of outputs to simulate what may happen if conditions change somewhat from those supplied by the latest data feed. Business news journalists would have to retrain in order to keep their jobs. Economics courses in universities would be up-ended. Cloud computing would be redefined. With the model in place and in use, we may even see decreases in the intra-day, day to day, and week to week variability of prices on the stock markets because the input to investors’ decisions is vastly improved by the model and orderliness (Kahneman’s “thinking slow”) guides decision-making at all levels … private organizations’ planning, government fiscal and monetary policy choices and actions, business and news reporting, and investors’ and consumers’ behavior. Computer-based stock trading and the algorithms on which they are based, sensitive now to variability and developing investment gains based on that variability, might go out of business. It would be a very different world.
The argument that Bernanke cannot discuss the statistical modeling that existed while he led the USFed because the reader would not understand it and would be turned off by the description has face value but lacks validity when viewed in a larger framework. If the capabilities and possibilities for economic modeling are not discussed, ever, essential support for development and enhancement of these data-capturing and modeling capabilities cannot develop. One then is left with the likelihood of never developing what is both possible and useful. Not talking about “that complicated, math-based statistical modeling that the general reader cannot understand” is the equivalent of the health sciences having never talked about, and tried, vaccination as a health-maintenance option.
Bernanke quotes (p 466) with approval US President Woodrow Wilson who said “We shall deal with our economic system as it is and as it may be modified, not as it might be if we had a clean sheet of paper to write upon; and step by step we shall make it what it should be.” That’s an attitude saying ‘Do what people will accept; don’t bother to reach for state-of-the-art.’ Pinker (2011) documents how humans are ‘killing each other now at the lowest rate in human history’ – a fact many will say is untrue – and describes the steps humans have taken over the 700,000 years or more it has taken humans to evolve to reach current achievements in this aspect of the ‘socialization’ of the human being. The moral guideline for human behavior (“Thou shalt not kill”) is at least 3,000 years old. I don’t think humans must take 700,000 years or even 3,000 years to reach today’s level of performance on this matter, a performance level clearly capable of much further improvement. However, if we take Woodrow Wilson’s (and Bernanke’s) viewpoint, seeking to adopt only what is politically possible now and not bothering to reach for state-of-the-art, much useful knowledge will lie unused for many centuries … and we’ll all suffer as a consequence of our happily cherished ignorance (unwillingness to learn) and our laziness. We cannot wait until ‘the market’ demands the forecasting outputs from these statistical-mathematical models. ‘The market’ doesn’t know those models can be built. Those who know have to build the models and advocate their use, communicating about those models with wide audiences of opinion leaders and organization leaders. Let’s learn to watch what counts, the real and complex operation of the world’s economies and the forecasts of their future performance as represented by data-informed mathematical-statistical models … not the USFed chair’s choice of words.
Paralleling my sense that the research underlying the USFed’s decisions about “when, what, how much, and how long” is inadequately described in Bernanke’s account, so too I miss the tables and charts that one normally associates with reports by economists and financiers. For example, “the balance” on the US account (as Bernanke names it … others might call it the “debt” generated by quantitative easing and by the purchase of at-risk investments using TARP monies), is noted in numbers from time to time in the text, but there is no chart showing its change through time.
I hope someone reading this review will contact me and point to an informed, book-length account of the state of the art in statistical-mathematical modeling-forecasting of the economic future, an account intended for an audience of organizational leaders, not for a cozy audience of fellow technicians. Bernanke correctly understands the importance of communicating economic policy making to wide audiences of leaders and the public. May the prophet pointing to the consequences of current economic activities and decision-trends soon be a computer – the prophet whose forecasts drive decisions of investors in the world’s stock exchanges, legislators deciding tax policy, governments prioritizing new government programs, and organization leaders choosing innovative steps for their organization – thus allowing the policy leaders to plan based on more valid (accurate) forecasts of the likely consequences of their choices and the scientists to turn to the task of improving that computer’s data feeds and the appropriateness of its statistical-mathematical treatment of those data.
Bernanke’s account indeed documents “the courage to act,” action enabled by a team of informed, capable leaders whose leadership benefited people around the world, saving us the 1929-1933-and-later pain of the consequences of widely copied individual and organizational decisions, private and government. Bernanke’s account is worth study – along with the other accounts by Sorkin (2009), Paulson (2010), Lowenstein (2010), Morgenson and Rosner (2011), Blinder (2013), Geithner (2014) – for the lessons needed to guide our futures.
Bellevue, Washington
9 November 2015
Copyright © 2015 by Paul F. Ross. All rights reserved.
References
Bernanke, Ben S. The courage to act: A memoir of a crisis and its aftermath 2015, W. W. Norton & Company, New York NY
Blinder, Alan S. After the music stopped: The financial crisis, the response, and the work ahead 2013, The Penguin Press, New York NY
Geithner, Timothy F., Stress test: Reflections on financial crises, 2014, Crown Publishers, New York NY
Kahneman, Daniel Thinking, fast and slow 2011, Farrar, Straus and Giroux, New York NY
Lowenstein, Roger The end of Wall Street 2010, The Penguin Press, New York NY
Morgenson, Gretchen, and Rosner, Joshua Reckless endangerment: How outside ambition, greed, and corruption led to economic Armageddon 2011, Henry Holt Inc., New York NY
Paulson, Henry M., Jr. On the brink: Inside the race to stop the collapse of the global financial system 2010, Grand Central Publishing, New York NY
Pinker, Steven The better angels of our nature: Why violence has declined 2011, Viking, New York NY
Sorkin, Andrew Ross Too big to fail: The inside story of how Wall Street and Washington fought to save the financial system – and themselves 2009, Viking, New York NY
Loading your book clubs
There was a problem loading your book clubs. Please try again.
Not in a club? Learn more
Join or create book clubs
Choose books together
Track your books
Bring your club to Amazon Book Clubs, start a new book club and invite your friends to join, or find a club that’s right for you for free.
Download the free Kindle app and start reading Kindle books instantly on your smartphone, tablet, or computer - no Kindle device required. Learn more
Read instantly on your browser with Kindle for Web.
Using your mobile phone camera - scan the code below and download the Kindle app.
Flip to back Flip to front
Follow the Author
Something went wrong. Please try your request again later.
| Price | New from | Used from |
|
Audible Audiobook, Unabridged
"Please retry" |
–
| — | — |
|
Hardcover, Illustrated
"Please retry" | $5.66 | $1.35 |
|
MP3 CD, Audiobook, MP3 Audio, Unabridged
"Please retry" | $11.44 | — |
|
Wall Chart
"Please retry" | $68.97 | $66.77 |
What do customers buy after viewing this item?
Page 1 of 1 Start overPage 1 of 1
About the author
Follow authors to get new release updates, plus improved recommendations.
Reviews with images
Top reviews from other countries
Alok Kejriwal
A fabulous gem of a read that teaches financial and business wisdom!
Reviewed in India 🇮🇳 on September 11, 2022
