Feb. 11, 2016 SIGN IN | REGISTER

When the Crisis Was at Crescendo

The Fed undoubtedly expanded its power to do its work. But with the Bush administration unwilling to act when action was most needed and Congress — or many members — either blissfully unaware of the economic danger or willing to risk it, the Fed opted for staving off disaster.

Given that the central bank’s mandate does include the pursuit of maximum employment, its steps to avert a much deeper economic contraction fell within the spirit of its mandate, if not the letter of the law.

Former Fed Vice Chairman Blinder puts the clearest thinking in the central bank, making that institution look better than others. But he’s not especially harsh on anybody else. Saying that Lawrence H. Summers was “acerbic, domineering and argumentative” has long since stopped counting as a revelation. Henry M. Paulson Jr., the Treasury secretary apparently abandoned by President George W. Bush in the final months of 2008, comes off less like a bull in a china shop than a puppy in a stack of clean towels. He didn’t always help, but didn’t do any damage that couldn’t quickly be fixed.

They all got it pretty much right.

“On balance, the years 2008-2010 were marked by extraordinary policy activism, not passivity, by the Federal Reserve and two presidential administrations. The scope and volume of these policies were enough to keep heads spinning and policy makers exhausted ... Perhaps the biggest surprise of the entire episode is that they succeeded as well as they did.”

Getting it right, however, won’t make the next chairman’s job easier. Congress, which was for a massive injection of rescue funds before it was against them only to be for them again after the markets plunged, has reined in the power of the rescuers. Members say they don’t want banks that are too big to fail, but the regulators face banks bigger than ever with fewer powers if failure comes. The Dodd-Frank financial overhaul enacted in 2010 to reduce the risk of crisis is already being chipped away.

His subtitle notwithstanding, Blinder’s not much help on the work ahead. He closes weakly with a financial 10 commandments and a seven-step rehabilitation program for policymakers. His first four commandments? Thou shalt remember that people forget. Thou shalt not rely on self-regulation. Thou shalt honor thy shareholders. Thou shalt elevate the importance of risk management. Ignoring those commandments caused the last problem. They’re starting to be ignored again.

Randolph Walerius is an analyst for the CQ Roll Call Washington Securities Briefing.

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