Wednesday, December 30, 2015

No. 136: Ben Bernanke's Fascinating Memoir

Ben Bernanke chaired the Federal Reserve from 2006 to 2014, a period that encompassed the Great Recession of 2007-2009. He has written a fascinating book entitled The Courage to Act: A Memoir of a Crisis and Its Aftermath. The book was published October 5, 2015.

The Prologue about AIG
For persons interested in insurance, Bernanke's six-page prologue immediately grabs the reader's attention. He describes the difficult and controversial decision to rescue American International Group (AIG) from bankruptcy. He made the final decision at 9:00 p.m. on Tuesday, September 16, 2008, on the heels of his decision to rescue Bear Stearns and immediately following "Lehman Weekend," which ended with the bankruptcy filing by Lehman Brothers at 1:45 a.m. on Monday.

Maurice ("Hank") Greenberg was AIG's longtime chief executive officer. He retired in 2005 in the midst of an accounting scandal. In November 2011, he filed a pair of lawsuits against the U.S. government alleging the terms of the 2008 rescue were unfair to AIG shareholders. I wrote about the lawsuits in the April 2013 issue of The Insurance Forum and in No. 106 (posted June 24, 2015). In writing the conclusion of the April 2013 article, I considered but decided against using the word "chutzpah" to characterize the lawsuits. Instead, I expressed agreement with observers who viewed the lawsuits as an attempt to rewrite the terms of the rescue. Bernanke, however, in his chapter about AIG, calls the lawsuits "a remarkable demonstration of chutzpah."

Structure of the Book
The 579-page text of Bernanke's memoir is divided into three parts and 23 chapters. Here is the outline:
I Prelude
1 Main Street
2 In the Groves of Academe
3 Governor
4 In the Maestro's Orchestra
5 The Subprime Spark
6 Rookie Season
II The Crisis
7 First Tremors, First Response
8 One Step Forward
9 The End of the Beginning
10 Bear Stearns: Before Asia Opens
11 Fannie and Freddie: A Long, Hot Summer
12 Lehman: the Dam Breaks
13 AIG: "It Makes Me Angry"
14 We Turn to Congress
15 "Fifty Percent Hell No"
16 A Cold Wind
17 Transition
18 From Financial Crisis to Economic Crisis
III Aftermath
19 Quantitative Easing: The End of Orthodoxy
20 Building a New Financial System
21 QE2: False Dawn
22 Headwinds
23 Taper Capers
The book includes an epilogue ("Looking Back, Looking Forward"), acknowledgments, a note on sources, a selected bibliography, and an index. To save space and paper, detailed chapter and page notes are in a 56-page easy-to-read PDF that may be found at and by clicking on "Notes."

General Observations
In the opening chapters, Bernanke describes his early life in the small town of Dillon, South Carolina, and his strong academic career encompassing Harvard, Massachusetts Institute of Technology, Stanford, and Princeton. He describes his work as a member of the Federal Reserve Board, his service on the President's Council of Economic Advisers, his nomination by President George W. Bush to succeed Alan Greenspan as chairman of the Fed, and his renomination to a second four-year term as chairman by President Obama.

The remainder of the book describes the origins of the Great Recession and the actions Bernanke and others took to address the crisis. The chapters on the rescue of Bear Stearns, the failure of Lehman Brothers, the rescue of Fannie Mae and Freddie Mac, and the rescue of AIG are especially interesting.

Bernanke's writing is crisp and easy to read. The book is written to educate people who have a limited grasp of monetary policy, rather than for monetary experts and technicians. Many disagree—in some cases strongly—with Bernanke's views. In the book, however, he goes out of his way to describe in detail the arguments on all sides of the many aspects of monetary policy.

Bernanke's comments on individuals who worked hard with him and against him are fascinating. Especially interesting to me are his comments on central bank leaders around the world, his observations about individual members of Congress, and the manner in which he describes briefly the backgrounds of many of the people he mentions.

I think the Bernanke memoir is well worth reading. It is a gripping account of our nation's—and the world's—worst financial crisis since the Great Depression. I strongly recommend reading every page of the book.

Available Material
I am making available a complimentary four-page PDF containing my article entitled "Hank Greenberg Sues the U.S. Government" in the April 2013 issue of The Insurance Forum. Email and ask for the article about Greenberg's lawsuits against the U.S. government.