It is ironic that while we live in the “information age” with 24/7 cable “news” programs, access to online college courses, and multiple books on current events, we are woefully uninformed as a democratic electorate. A case in point is the lack of understanding we have about events leading up to and following the 2007-2009 economic collapse.
Princeton economic professor and author Alan Blinder attempts to remedy that in his recent book “After the Music Stopped: The Financial Crisis, The Response, and The Work Ahead.” In clear prose, accessible to a general audience, Blinder details the efforts during the latter days of the Bush and early days of the Obama administrations to respond to the bank crisis and developing recession.
Blinder argues that the banking crisis was the consequence of many extremely complex private market decisions leading to a market failure that necessitated government intervention to prevent a depression rivaling the economic collapse of the nineteen thirties.
He clearly conveys the sense of intense pressure and almost panic that pervaded Washington in 2008 as Paulson, Geithner, and Bernanke struggled to keep our economic ship afloat. The critical event that triggered the panic was the failure of Lehman Brothers on September 15 following the decision not to rescue Lehman as it had done when JP Morgan Chase acquired Bear Stearns in March.
For Blinder the much maligned 700 billion dollar Troubled Asset Relief Program (TARP) was a tremendous success that allowed us to avoid a depression. Contrary to public perceptions, total dispersals under TARP never exceeded $430 billion including the money allocated by the Bush administration to save the auto industry. The net cost to the taxpayers was just $32 billion as of March 2012, a small price for avoiding an economic catastrophe.
While TARP passed during the Bush administration it signaled the end of any semblance of bipartisanship as the country continued its economic decline. From October 2008 through January 2009, while the Obama transition team was organizing the new administration, we lost 2.8 million jobs. During the transition the Obama team developed a plan to reverse the job losses. The American Reinvestment and Recovery Act (ARRA) passed without a single Republican vote eight days after the inauguration.
The preceding just scratches the surface of the information in this book. There is a detailed narrative of the complex events of the last five years including the passage of and ongoing struggle to implement the Dodd-Frank Act and the Consumer Financial Protection Bureau. I find the ineffectiveness of the efforts to help homeowners with mortgages in default after the housing bubble collapse troubling. It seems to me that there was a double standard between the criteria for helping the banks and the helping financially stressed homeowners.
The final chapter includes specific recommendations about future policies that may help us recover more quickly and avoid similar debacles in the future.
Understanding and respectful dialogue can lead to constructive solutions.
Fruitless political blaming leads nowhere.