The man who averted Great Depression 2.0

By Robert Gavin
Globe Staff / October 15, 2009

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In 2005, after learning that President Bush would name him Federal Reserve chairman, Ben Bernanke called his wife with the good news. She burst into tears, aware of the demands that would be placed on her husband and their life together.

Her reaction was perhaps a portent. Three years later, Bernanke would be locked in a death-grip with the worst financial crisis since the 1929 crash, struggling to prevent it from spiraling into a second Great Depression.

The story of this epic battle and the events that brought the global economy near collapse is told in a detailed, smart, and riveting new book by David Wessel, “In Fed We Trust: Ben Bernanke’s War on the Great Panic.’’ Wessel, economics editor and columnist at the Wall Street Journal, uses his deep knowledge of the economy and access to Bernanke and other key players to write what is - and may well be for some time - the definitive account of this extraordinary period in economic history.

Wessel masterfully weaves together economics, politics, history, and high finance, infusing the story with personalities and anecdotes, such as Bernanke’s call to his wife. He takes the reader deep into the Federal Reserve, explaining how this mysterious agency operates and illuminating the fierce debates and personal clashes that lurk behind the Fed’s bland, often opaque statements on interest rates.

He tracks, in a compelling narrative, how two decades of stable economic growth sowed the seeds of collapse, and how so many smart people, including Bernanke, underestimated just how bad it would get. What Wessel accomplishes is no small feat: He takes the arcane world of credit default swaps, tri-party repos, and adverse feedback loops and makes it exciting.

The hero of the story is Bernanke, the unassuming Great Depression scholar who ends up living what he studied. This is no puff piece, however. Wessel details Bernanke’s missteps, such as underestimating the impact of cascading subprime mortgage defaults and reacting too timidly to early signs of trouble.

The book, in fact, opens with what was perhaps Bernanke’s greatest misjudgment: the decision to allow Wall Street’s Lehman Brothers to fail. Panic spreads, and the economy goes into freefall.

Bernanke quickly finds his bearings, employing intelligence, creativity, and the determination to do whatever it takes to prevent “Great Depression 2.0.’’ He leads the Fed into uncharted territory, essentially printing money to rescue financial firms, lend to Wall Street, and buy mortgage-backed securities.

Ultimately, Bernanke’s courage in pushing the Fed’s powers to the limit - and perhaps beyond - helps save the nation from a repeat of the 1930s.

But did Bernanke go too far? Wessel argues that the Fed essentially became a fourth branch of government, testing one of the basic principles of the Republic: elected representatives raise and spend money.

Still, it’s unnerving to imagine conditions had Bernanke and the Fed not moved so aggressively. With an unpopular lame duck in the White House, and Congress mired in election year politics, the Fed was the only institution able to react as the economy plunged at frightening speed last fall. Without an independent Fed, led by a Great Depression expert, we may have indeed spiraled into “Great Depression 2.0,’’ as Wessel concludes.

Recent economic reports suggest a recovery is finally underway while Bernanke has been nominated to a second term by President Obama. Bernanke still faces a raft of Monday morning quarterbacking in confirmation hearings, but as Wessel shows, his bold, unprecedented actions likely saved the US economy from disaster.

Still left unanswered: At what cost?

Robert Gavin can be reached at

IN FED WE TRUST: Ben Bernanke’s War on the Great Panic By David Wessel

Crown, 336 pp., $26.99

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