For David Wessel, an award-winning journalist for the Wall Street Journal, last year's financial crisis was the The Great Panic.
In a new book, In Fed We Trust (Crown Business, $26.99), Wessel makes the case that policymakers at the Federal Reserve lacked a clear understanding of events leading up to the crisis. The result, when the crisis hit in late 2008, was panic.
The book gives a concise chronology of the events leading up to the crisis, with technical details of the banking system and the Fed, in clear language with little financial jargon.
In addition, he shows how Federal Reserve Chairman Ben Bernanke's upbringing and study of the Great Depression provides his motivation and colors his actions.
Whereas Bernanke's predecessor, New Yorker Alan Greenspan ran the Fed as a one-man show, Bernanke, who grew up in South Carolina, emphasizes the committee in Federal Open Market Committee, which sets Fed policy. And while Greenspan believed he failed if anyone understood what he said in public, Bernanke tries to be clear.
Wessel also contends that the Fed has now become the fourth branch of government, raising and spending vast sums of money with little oversight from elected officials. He notes that Congress, which is elected and has authority under the constitution to raise and spend money, has raised $700 billion to resolve the banking crisis. The Federal Reserve has allocated more than $1 trillion.
Wessel drives this key point well: enormous power has been give to a small number of people who were not chosen by the citizens.
We are fortunate they have mostly used that power wisely, he says, but do we want to bet our future prosperity on their actions when we come to the next Great Panic?