Firefighting: The Financial Crisis and its Lessons, is so called because it brings together the main men who were assembled to fight the economic crisis, or as they call it, the fire that engulfed the world between 2007 and 2009. Geithner, Bernanke & Paulson (from here on referred to as GB&P) are the three main protagonists, who together did the most to bring under control the firestorm that started in 2007 with the failure of the US financial system, that had so underpinned the US economy and then spread to the rest of the world.
With the benefit of hindsight, they take us through the background to the financial crisis, what we should have seen coming and what led to the biggest economic disaster for 75 years. So many lessons are identified for the reader to reflect on, but also for future policy makers to look out for.
What is written by way of background is interesting, but not earth shattering. Any seasoned watcher of the economic crisis would be more than adequately versed in this, and while detailed and well written, it is somewhat laboured in its approach.
However, the passage of time has not dulled the danger that the world faced back in 2007. It is clear that the world was staring at the precipice and the insight we are given into the way that these three men went about dealing with the fire, lets us become a fly on the wall of those sleepless nights and long negotiations that were going on behind the scenes. This journey through the 18 months of bank, insurance and financial organisations’ failures was a rollercoaster and showed the nature of the fire that they were trying to douse. They would manage to get one bank saved only for another to catch fire and require immediate attention. All their worst nightmares were coming true before their eyes and they were always seemingly only a few minutes away from complete disaster.
The way that GB&P managed to save some financial institutions, with many secretive backroom negotiations, is explored in detail, but they also address much of the criticism they came in for. They face head on the vitriol that was levied at them for not saving Lehman Brothers, but rather than shirking from their responsibility, they are clear that they did all they could, laying some of the blame on other banks, the government and economists at the time who wanted a bank failure, in order to avoid creating an unwelcome precedent. It was hoped a bank failure would prevent a moral hazard that future generations would regret.
Worryingly GB&P feel that we have not escaped the possibility of such a crisis in the future; the worst possible crises are behind us and increased capital held by banks means that they are passing the most stringent of stress tests, but we are certainly not immune to the possibility of a fire in the future. Much of the legislation that was passed in order to help them fight the worst of the crisis, has been rolled back, contrary to their hopes. They are clear that they feel that the bipartisan work of Capitol Hill was unprecedented in modern times, and unlikely to be repeated, weakening any weapons that their successors might be able to deploy. Add to that the historically low interest rates that the world now experiences which ensure that monetary policy is no longer available in the same way as it was in 2008.
They set out what weapons they would hope could still be used and confidently speak of the tools they have left their successors, but worry about the roll back of this legislation and the short memories that bankers and politicians have.
All that said, the book is well written and reads like a novel; the style is accessible and written for those who want to know what happened a decade on. Bringing the three authors together, given their backgrounds in the Federal Reserve, academia, banking and the US Treasury is a coup of the highest order. Ensuring that what GB&P write comes across with a unified voice could have been a herculean task, but it has certainly been achieved. The authors state in their introduction that they wish to educate those too young to remember the economic crisis and ensure that the lessons that could be learnt are learned by the future policy makers. In that regard the book certainly achieves its aims.
Marwan Mikdadi is an experienced teacher, head of department and principal examiner.