David Warsh: The high-speed bailout of 2009
SOMERVILLE, Mass.
I spent some hours last week browsing the newly released transcripts of Federal Open Market Committee meetings in 2009. Mostly I relied on the extraordinary “live tour” and subsequent coverage by The Wall Street Journal team.
I was struck by how greatly the action had shifted to the incoming administration of President Barack Obama. The acute-panic phase of the crisis was past, and relatively little of the drama of that troubled year is captured in the talk of monetary policy.
On Jan. 15, President George W. Bush asked Congress to authorize the incoming Obama administration to spend $350 billion in Troubled Asset Relief Program funds. Obama was inaugurated Jan. 20.
Treasury Secretary Timothy Geithner on Feb. 10 announced a financial stabilization plan consisting mainly of stress tests for the nineteen largest bank holding companies.
In a conference call, Fed Chairman Ben Bernanke explained to the Federal Open Market Committee that the details were hazy. “It’s like selling a car: Only when the customer is sold on the leather seats do you actually reveal the price.”
On Feb. 17 Obama signed the American Recovery and Reinvestment Act of 2009, a stimulus package of around $800 billion in spending measures and tax cuts designed to promote economic recovery.
In March the Fed announced it planned to purchase $1.25 trillion of mortgage-backed securities in 2009, expanding the “quantitative easing” program it had begun the previous November. Also the administration’s bailout of the auto industry was completed.
In May, Geithner reported that nine banks were judged sufficiently well capitalized to have passed the stress tests. Ten others would be required to raise additional capital by November. Gradually the stabilization was recognized to have been a success.
And in August, Obama nominated Bernanke to a second term as Fed chairman. Senior White House adviser Lawrence Summers had been unsuccessful in his efforts to replace first Geithner, then Bernanke. He would try again.
Bernanke’s book-length account of all this is expected in the fall. About the same time, U.S. Court of Claims Judge Thomas Wheeler likely will have delivered a verdict in a lawsuit against the government alleging that Bernanke acted illegally when the Fed took control of insurance giant American International Group at the height of the crisis.
Meanwhile, Summers has been repositioning himself, perhaps hoping to return to the White House in a Hillary Clinton administration. In a New York Times piece, ''Establishment Populism Rising,'' Thomas Edsall interviews the Harvard professor for an update on Summers’s thinking.
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I continue to get my news of Russia from even-handed Johnson’s Russia List – five issues last week alone, containing 188 items from the U.S., European and Russian press, most of which, needless to say, I did not read. Two that I did stood out.
Jack Matlock, ambassador to the disintegrating Soviet Union under George H.W. Bush, wrote on his blog that the “knee-jerk” conviction that Vladimir Putin was directly responsible for the deliberately shocking murder of Russian dissenter Boris Nemtsov overlooks other possibilities. “So far nothing is absolutely clear about this tragedy except that an able politician and fine man was gunned down in cold blood,” he concluded.
Peter Hitchens, in The Spectator, argued that It’s NATO that’s empire-building, not Putin. His principal authority, George Friedman, founder of the high-end publisher Stratfor, dates the current phase of the conflict from Putin’s refusal to go along with US policy in Syria in 2011.
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I was struck that when the Club of Growth asked Wisconsin Gov. Scott Walker about his foreign- policy credentials, he replied that he considered Ronald Reagan’s decision to fire striking federal air-traffic controllers in 1981 “the most important foreign-policy decision of his lifetime.”
{Added by New England Diary overseer: Walker said of the firings; "It sent a message not only across America, it sent a message around the world'' that "we weren't to be messed with.''}
When you’re a kid with a hammer, the whole world looks like a nail.
(Reagan speechwriter and Wall Street Journal columnist Peggy Noonan offered Walker some half-hearted backup and The Washington Post zeroed in on Walker’s cram course in foreign policy.)
I mention it mainly ir to say that, having spent most of my life covering economic development, one way or another, I’d say that the skein of events more important to U.S. foreign policy than any other were those in which the march in Selma, Ala., commemorated this weekend played an important part.
David Warsh is proprietor of economicprincipals.com and a longtime financial journalist and economic historian.