Appreciation: Wessel on Bernanke

There's a delicious moment of unintended hilarity in the midst of In Fed We Trust, David Wessel's absorbing account of life at the epicenter of the non-meltdown last fall---together with a cautionary moral. The subject is Sheila Bair. Recall that Bair is the "strong-willed" Wessell's phrase and somewhat fortuitous (by Wessell's account) chairman of the Federal Deposit Insurance Commission.

Coming from Mars, you might expect to find the FDIC in charge of any effort to deal with banks in crisis. After all it is the FDIC that nationalizes liquidates failing banks. They are the guys in polyester who swoop in on a Friday night and open the doors next Monday morning after a transfer which one hopes will prove entirely invisible to the attending public. And pretty good at it, too: by my count, they've done their schtick 81 times so far this year.

Bank regulation has long proven way more complicated than that, and Wessel provides a thrilling account of how Ben Bernanke, et al., by a mix of bluff, guile and improvisation tortured the statute books and the bank ledgers in their campaign to fend off Armageddon.

Until they needed Bair's consent, and Bair said "no." By Wessel's account, this happened more than once, and evidently it made some of the salvationists just crazy. You get the impression that she put the whole operation at risk by stubbornly (my word) refusing to extend FDIC protection beyond a fairly restrictive letter of the law. Evidently she just didn't understand, Wessel seems to suggest, just how narrow-minded and obstructionist her concerns had come to be, and how much she put at risk by her skepticism and hesitation.

Okay, let's grant that from other accounts we can affirm that Bair was something of a loose cannon in the bailout operation and wasn't afraid of bandying about her power to make known her views. But there is a perfectly obvious (though invisible to Wessel) reason why she proved so obstructionist. That is: they treated her like a girl. Unintentionally but unambiguously, Wessel makes it clear that the pooh-bahs at Treasury and the Fed scarcely gave a thought to Bair's role in the great enterprise until they needed her signature or he bankroll. Even then, they seem to have perceived her as more or less of a speed bump and couldn't understand why she didn't just flatten when they rolled over.

In fairness, the real problem here doesn't seem to be Bernanke himself, who comes across in Wessel's account as one of the least ego-driven politicians alive: Wessel says that early in the crisis Bernanke "courted" (Wessel's word) Bair, "once going to her office and sitting next to her to a computer keyboard to fashion a compromise" (wouldn't you like to see Alan Greenspan do that, huh?). But Wessel says that later Bernanke and Treasury Secretary Hank Paulson and New York Fed Chairman (later Paulson's successor)Tim Geithner all came to see her as "stubborn and myopic." Tellingly, he says they also came to envy "the political agility that made her a hero on Capitol Hill."

Okay folks, time for the moral. In two words, "Stockholm Syndrom"--Wessel is just way too close to his story. He'a a diligent reporter with a pretty good knack for untangling abstruse money maneuvers, and a delicate touch for nuance as he tries to understand at least some of the personal issues involved. But his critical detachment is just about zero. So what we get here is the Bernanke version, told not with any insidious ulterior motive, but in a straightforward manner by a serious reporter who simply believes that Bernanke and his allies were right.

The Bair example is dramatic and amusing, but it is not the most important. Of much greater urgency: Wessel simply takes it for granted that Bernanke was essentially right: save us all from drowning by turning on all the spigots. Now, as a matter of fact, I tend to think Bernanke was right. But how can I know? More, how can anyone know? How do you test the rightness of a decision like this, when you can never have anything even remotely like a counterfactual?

Wessel gives you none of this. And while this kind of critical inquiry might be a lot to expect from a piece of quasi-journalism, still there were ways of approaching the issue. Specifically, as Wessel does have the courtesy to note, there are plenty of people who thought that Bernanke's strategy was fundamentally wrong. I mean in particular the several other Fed officials who voiced doubts and reservations (albeit almost always out of earshot from the daily press). Or John B.Taylor from Stanford who has positioned himself as the loudest nay-sayer in recent monetary debates (and who does get passing mention in Wessel's account). I'm pretty sure any one or more of them would have been happy to take some time on the record with Wessel to add dimension the main line of the narrative.

A related problem may be book-structual at least as much as (or more than) Stockholm Syndrome. That is the focus on Bernanke and the Fed. Bernanke certainly is a central figure--perhaps the central figure. But just about every page of Wessel's book makes clear that the rescue effort was a full court press, involving not just Bernanke but also Paulson and Geithner and others. The trouble with the focus on Bernanke is that he leaves Wessel unable to spell out the relationship between the three players. Certainly they understood the importance of cooperative/coordinated effort. But did they truly think alike? This ias implausible. A better and more thorough book would have spent more time trying to suss out the relationship between them.

But a better and more thorough book probably couldn't have been ready for publication so soon after the events it chronicles, not even (or especially not) if it was written a beat reporter whose objective was to grind out a good piece of second-generation journalism. That's a limitation, but granting the limitation, I'd say that Wessel has done quite a good job. I wouldn't be surprised but the authors of later and more leisured accounts will be peeking at their copies of Wessel's before they undertake to write their own.