Jarrod Jenkins's Reviews > In FED We Trust: Ben Bernanke's War on the Great Panic

In FED We Trust by David Wessel
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's review
Jan 16, 2011

did not like it
bookshelves: nonfiction
Read in December, 2010

The title says it all. Wessel absolutely adores Ben Bernanke, raving about his genius and character. Wessel is an idiot. He spends countless pages talking about how this boy from rural South Carolina is overwhelmingly brilliant. Neat? If you're looking for something other than a 300-page fanboy book about how fantastic bald, bearded Ben is, look elsewhere.

Those seeking understanding of WHY the Fed bailed out Goldman, Merrill, AIG, Fannie, Freddie, and others while letting Lehman, WaMu, and others splatter will not find much help here. Nor will they find an objective weighing of the pros and cons of the Fed's actions. Nor will they find potential alternatives to what many consider disastrous policies. Nor will they find any useful or thought-provoking insights into the financial crisis. Instead, Wessel simply ignores or asserts answers to key questions. Namely, should the Fed have done all this bailing out, did we really need TARP, couldn't the market have corrected itself, shouldn't we get the government out of housing, what incentives do the Fed's actions now have on future behavior, won't the next crisis just be that much worse?

Wessel briefly mentions that the problem was "clogged credit channels" and claims ad nauseam that Ben was willing to do "whatever it takes." Without exaggeration, this is the theme running through this book, and it is repeated maybe two dozen times. It's not clear what that phrase even means. Whatever it takes to do what? I guess to prevent another Great Depression. Notice how this doesn't really answer any fundamental questions at all. But it must be useful to have one response for every single question that arises. Hey Wessel, should we let a private, unelected individual or small group of individuals counterfeit $1.5 trillion? "Whatever it takes." Should we let them arbitrarily save some private companies by handing them taxpayer dollars even though they used to work closely with those companies and have many friends and acquaintances there? "Whatever it takes." Should we let them continue to print trillions of dollars despite the fact that inflation MUST result? "Whatever it takes." When I get a hangnail on my pinky, should I chop off my arm? "Whatever it takes."

Propping up or "bailing out," as they say, unprofitable companies to "unclog the credit markets" is antithetical to the spirit and purpose of capitalism. It is crony capitalism and fully deserving of people's ire. As a result of these brilliant policies to do "whatever it takes," we still have unemployment hovering around 10% years later, great regulatory uncertainty, Fannie and Freddie with their hands in the majority of secondary market mortgage sales, huge moral hazard practically institutionalized for the largest entities, and trillions of newly printed dollars that confiscate wealth from actual producers.

Ben and his fanboy fail to realize--or don't care--that uncertainty itself is a huge problem, not to mention inflating away dollars and thieving from savers. The Fed's "balance sheet" (an interesting use of the concept since it's fun to think about where the Fed's "assets" come from) went from $800 billion around 2007 to over $2.2 trillion in 2010. To be absolutely clear, the Fed doesn't create anything consumable. It merely creates money to make some people whole after they made horrible economic decisions. But, hey, Ben is supposed to be like really, really smart. "Whatever it takes."

The main problem with Wessel and other supporters of the Fed is that they posit a counterfactual that is impossible to refute. They say: Ben had to do "whatever it takes" to prevent the next Great Depression because it would have been even worse without his interference. This argument can always be used and is unanswerable. Unemployment is at 7%? Would have been worse. 8% or 10%? Would have been worse. The Dow drops 4%? Would have been worse. No matter how bad it gets, one can always just assert that it would have been even worse but for the Fed's actions.

The positions of Jim Rogers, Ron Paul, the Austrians, and anybody else who calls for the abolition of the Fed and sound money tied to a commodity or set to increase at a predictable, steady rate every year make much more intuitive sense than this nonsense about "whatever it takes." Sure, there would have been a recession after the housing bubble (which the Fed directly helped create through Alan Greenspan's low interest rate policy for years after 9/11 and the "Greenspan Put"). The recession may have even been severe and deep with many failures. But, as the history of this country has shown, recessions are brief without government interference. Companies that misallocate scarce resources will be punished, and those misused resources will find their way into more capable hands. This is a natural, healthy, and required part of capitalism. A bank failure is not itself a bad thing.

Clogged credit markets my ass. Credit is a good just like any other. Without government interference, the markets will provide for it at a mutually agreeable price. The huge price control interfering with this free exchange? The federal funds rate set by the Federal Reserve. Time to get rid of the Fed. The recession would be much quicker and less painful had the Fed not existed--a lot of people have said so, and some of them are like really, really smart.

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