Firefighting: The Financial Crisis And Its Lessons is the three person account of The Great Recession and the steps taken to repair the economy. The individuals credited with writing the book are Ben S. Bernanke, Timothy F. Geithner and Henry M. Paulson. The information presented is straightforward. One of the best aspects is the use of the firefighting metaphor to explain the steps taken at the time to mitigate the panic. Furthermore, my own memory of the tumultuous time meshes with the writing. So, the information rings as fact more than opinion.
A Keynesian Approach
Those of you with an economic background can differentiate between a Classical and a Keynesian approach to economic policy. For those of you unfamiliar with the theory, click here for a tutorial. The steps taken during the financial crisis of the Ought’s clearly represent the teachings of John Maynard Keynes. The Federal Reserve led by Bernanke, and the Treasury Department, first shepherded by Paulson during the Bush Administration then spearheaded by Geithner under President Obama, went to great lengths to stop the downward spiral of the economy. Firefighting takes you step by step through the interventions.
I appreciate the book for what I perceive is an honest portrayal of the cause and effect of the crisis. The authors go to great length to posit why some firms survived while others folded. Since I vividly remember public events as well as personal anecdotes from the time, I feel quite comfortable highly recommending the book.
In addition to relating the fiscal and monetary steps taken to fight The Great Recession, Firefighting puts forth warnings for the future. The authors have two key concerns. First, the three former public servants are concerned with a loss of power for both the Treasury Department and Federal Reserve. They make a good case for the immediate ability by the agencies to react to future crises.
Second, the authors are duly concerned with the functionality of Keynesian economics. Government intervention in times of crisis is only one-half of the economic theory. Keynesian economics also calls for replenishing the coffers during expansions. This is not occurring. Instead of bringing the deficit down, our debt levels are increasing. Thus, the authors believe, both monetary and fiscal policy will be hampered in firefighting the next economic downturn.
The argument between interference and non-interference in the markets is central to economic philosophy. The debate between the Classical school of thought and the Keynesian Theory is reflected today in our divided politics. I encourage all to read Firefighting including members of Congress.
One of my favorite websites to share with new students of economics is the US Debt Clock. Visiting this site is eye opening. Similarly, Firefighting will also open eyes. For example, the book acknowledges the public relations nightmare of propping up AIG.
Personally, I saw and was offended by the lavish expenditures of AIG during the height of the meltdown. But I did not know the flip side until reading Firefighting. Grudgingly, I admit the intervention was necessary. Thus my appreciation of the work of Bernanke, Geithner, and Paulson. Both for the book and their many sleepless nights a decade ago.