Ben Bernanke, Hank Paulson and Tim Geithner were the three musketeers who did the firefighting during the 2008 crisis (some would say they created the crisis as well!).
After writing their own accounts (Courage to Act by Bernanke, On the Brink by Paulson, Stress Test by Geithner) they have co-written a book: Firefighting – The Financial Crisis and its lessons.
Howard Davies not just informs about this new book but also reviews it. In this Churchill’s quote is worth nothing:
After World War II, Winston Churchill confidently asserted that history would treat him kindly because “I propose to write that history.” Now, a decade after the global financial crisis, three of the key players in that episode have co-authored a book that is interesting not so much for its treatment of the past as for its proposals for the future.
What do they say about future?
First, Bernanke, Geithner, and Paulson point out that imposing higher capital requirements on banks caused much credit creation to migrate to the non-bank sector, where US authorities still lack authority to intervene, whether preventively, by requiring higher capital reserves, or by providing financial support to stabilize markets if necessary. They argue for an FDIC-style insurance model for the broader financial system. Quite how that would work is left unclear, but the idea is worth further thought.
Second, they note that the US system of financial regulation has barely been reformed, despite the many weaknesses revealed by the crisis. In their view, “the balkanized financial regulatory system could use reform, to reduce turf battles among redundant agencies with overlapping responsibilities.” They tried to promote change, but only one small agency, the ineffective Office of Thrift Supervision, has been abolished. Even after the Dodd-Frank overhaul, they lament, “there is no single regulator responsible for safeguarding the system as a whole.” That is a damning commentary on the Financial Stability Oversight Council, which was supposed to fulfill that function.
They are a little coy about the identity of those “redundant agencies,” but the Commodity Futures Trading Commission must be on their list. No other country has separate regulators for cash equities on the one hand, and derivatives on the other. Only defensive congressional fiefdoms prevent rational reform in that area.
The third proposal is targeted principally at the Trump administration, though Congress is again also implicated. Bernanke, Geithner, and Paulson believe that current US fiscal policy is deeply misguided. The deficit is too high, at a time when the economy is growing healthily. That is bad economics today, and, more important, the authorities could, as a result, find it difficult to relax fiscal policy to combat a future recession. As they put it, “the use of fiscal adrenaline could be limited just when it is needed most.” There is an urgent need to “restock the emergency arsenal,” particularly when there is relatively little scope to relax monetary policy. The Fed began a process of normalizing monetary policy, but has not completed the job, and President Donald Trump is doing what he can to prevent them from doing so, by heckling from the sidelines.
The Three Musketeers remain positive about some elements of the post-crisis program. Bank capital has been greatly strengthened, and the transparency of the derivatives markets materially enhanced. Those changes make the financial system safer. But their agenda for further reform is substantial, and fundamental.
And, next time, we may not be as fortunate in the quality and resourcefulness of our crisis managers – or in the wisdom of their political masters.
🙂 I think the last line was a pun!
Mostly Economics 
