On Topic: Ben Bernanke and the big barn door

Looking through its index more often than not can tell you a multitude more about a book than a table of contents.

In former Federal Reserve Chairman Ben Bernanke's new book, 'The Courage to Act: A Memoir of a Crisis and its Aftermath,” detailing the events leading up to, during and after the 2007-2009 financial calamity, the index doesn't list a heading for crime, illegality or jail time. Nothing for culpability, either.

Don't get me wrong - I can't say that lending mega-insurer American International Group, aka AIG, $85 billion - an almost incomprehensible sum of money - was indefensible. Especially after the collapse of Lehman Brothers, this country's fourth-largest investment bank, knocked the Dow Jones industrial average down 504 points.

That was ' …

its steepest one-day point decline since Sept. 17, 2001 - the first day of trading after the Sept. 11 terrorist attacks,” Bernanke reminds us. And AIG was more than 50 percent bigger than AIG.

Given the many companies it covered around the globe, and the vast number of people those companies in turn employed - 106 million - 'AIG's collapse could well trigger the failures of yet more financial giants, both in the United States and abroad,” Bernanke recalls when explaining his reasoning to then-President George W. Bush.

High stakes indeed.

The Fed chief talks about how much of Congress didn't or wouldn't understand why we should help AIG when we didn't do the same for Lehman Brothers. Some economists contended maybe the Fed shouldn't be in the business of aiding any of these businesses: 'AIG has been bleeding capital and liquidity for months,” one, Adam Posen, wrote. 'Anybody in their right mind could have gotten out.”

In other words, it serves them right. Logic suggests, though, that's a lot of insured companies and individuals - 74 million - that would have had to have 'gotten out.”

Bernanke also bolsters his argument that his vision was correct by pointing to other industrial nations' progress since then. Goods and services output in the Eurozone, he argues, at the end of 2014 was something like one and a half points below its peak.

By contrast, the United States's output at that same time was more than eight percent higher than at the end of 2007. Not great, he admits, but still ….

Bernanke writes confidently about his actions. But then, you would, wouldn't you, if you had run the Fed and kept your hand on the tiller during one of its most dramatic periods, when monetary policy decisions swelled to high opera.

I guess my beef with this otherwise engaging telling of things goes back to a point Gretchen Morgenson and Joshua Rosner made in their first-class 2011 book, 'Reckless Endangerment”: Bernanke didn't seem to be concerned about the Fed tracking the horse before it escapes out through the open barn door.

In one speech, in this case about asset bubbles (think: housing, dot-coms), Bernanke stated the Fed 'doesn't really have good instruments for addressing asset price bubbles should they exist, particularly if they are in one segment or another.”

'This was perplexing,” Morgenson and Rosner wrote with, I suspect, a gallon of understatement. 'With dozens of economists poring over reams of data and churning out papers on their findings, the Fed didn't have any better information than other investors?”

In other words, it seems as if all the king's regulators are interested in dealing with problems only after they rise to the level of bone-rattling crisis.

But then they're - sometimes - reluctant to let a free market continue to run its course.

Oh, and there also is no entry in the index in Bernanke's book for humility.

l Michael Chevy Castranova is enterprise and Sunday business editor of The Gazette. (319) 398-5873; michaelchevy.castranova@thegazette.com