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Helpful Insights on FDIC Processes -- 3-1/2 Stars
on May 31, 2010
I've admired a number of opinion pieces Mr. Isaac has written on financial regulatory reform and the handling of the 2007-09 financial crisis. He did a great job developing the capabilities and professionalism of the FDIC, and he should have been listened to more than he was by administration and congressional leaders in the mid-80s; if he had been, the S&L crisis would have been much less traumatic and costly.
The chief value of this book is the insights it provides about how Isaac's thinking and the thinking at the FDIC developed in the early '80s to respond to a series of institution failures in a coherent and responsible manner. Isaac took some brave stands at FDIC that served the taxpayers well.
Some of his more general observations about the recent financial crisis are also interesting and valid (IMHO) up to a point. However, the book suffers from Isaac's bank-centric and FDIC-centric perspective. It's an example of how, when the only tool you have is a hammer, all problems look like nails. He asserts repeatedly that the recent crisis would have been resolved more easily had only government leaders acted as the FDIC acted in the mid-80s.
Unfortunately, the recent crisis was qualitatively different than the bank and S&L crises of the '80s, though, to be sure, some aspects of it repeat the history of the '80s (and of 1998, the '30s, 1907, etc.). Just to mention a few critical differences almost ignored by Isaac, his '80s experiences dealt with problems contained almost entirely inside the bank and thrift industries, while the recent crisis substantially involved problems in the "shadow banking" world; he pays little attention to the effect on the recent crisis of the derivatives markets or the rapidity of market transactions permitted by technological advances; and he ignores almost entirely the internationalization of global finance and the implications of those developments for the problems of 2007-09,
Glossing over those distinctions is significant, because the differences between 1984 and 2008 bear directly on the question of whether the problems of 2008 could have been solved with the approaches of 1984. I think not, and for that reason, Isaac does not persuade me that he is correct in his main thesis, namely, that much of the panic of 2008-09 was "senseless" and could have been avoided by better governmental responses and policies.
That said, this remains a valuable book that I would recommend for anyone attempting to stay on top of the literature relating to the recent financial crisis. I would not suggest that it be the only book one reads, but it deserves to be considered by those who have read Wessel, Sorkin, Paulson, Lowenstein, and some of the other books on the crisis.