Sunday News

Economist does his best to explain the financial crisis in layman's terms
By Daniel Akst, Bloomberg News

Do we really need another book about the financial crisis?

The economist Alan S. Blinder certainly thinks so. In "After the Music Stopped: The Financial Crisis, the Response and the Work Ahead," he says, "The American people still don't quite know what hit them."

Part of the problem, as he sees it, is that the Obama administration has done such a terrible job explaining things to the voters. He's right, and he proves adept at doing the explaining himself. A former economic adviser in the Clinton administration and ex-vice chairman of the Federal Reserve, Blinder is especially good at providing political context. Unlike some post-crash commentators, he doesn't unburden himself of utopian proposals that have no more chance of adoption than Greece has of paying off its debts.

If anything, Blinder is all too conscious of how Washington works, and this is one of the most dispiriting aspects of the book.

Given his understanding of the dismal realities in the nation's capital, Blinder thinks Uncle Sam did surprisingly well in coping with the crisis, and his book is an extended -- and reasonably persuasive -- apologia for the bailouts, the Fed's unprecedented interventions and even the Dodd-Frank reforms aimed at making a replay of the crisis less likely.

Yet at times the author is too circumspect. He seems to think letting Lehman Brothers fail in disorderly fashion was a terrible idea, but he never really comes out and says so. He cites inadequate regulation as a factor leading to the crisis, but lets Fed Chairman Ben Bernanke (a member of the Fed's Board of Governors from 2002 to 2005) off easy. Indeed, the book must be read in the context of Blinder's longstanding friendship with Bernanke.

Critics of the status quo will find little to feast on in such fare. Blinder doubts, for example, that we can effectively limit bank size in a competitive environment, as opponents of too-big-to-fail have demanded.

On the other hand, it takes courage to defend government actions such as bank bailouts that are so deeply unpopular. Blinder correctly emphasizes how little time or precedent policymakers had, how dire the consequences of even a single systemically important collapse (Lehman) had been, and how cost-effective Fed and Treasury actions proved to be.

Lay readers will wish the book were shorter and will be depressed by the portrayal of a government heavily influenced by lobbyists and unable to effectively address the foreclosure mess. Fortunately, that's not the whole story, for every reader should come away with a sense of optimism. Blinder makes a good case that, in the face of catastrophe, public officials acted boldly, creatively and effectively.

The tragedy is that people don't seem to get that. This book is likely to help.n