Published by EH.Net (December 2023).
Ben S. Bernanke, Timothy F. Geithner, and Henry M. Paulson Jr., with J. Nellie Liang, eds. First Responders: Inside the U.S. Strategy for Fighting the 2007-2009 Global Financial Crisis. 624 pp. New Haven: Yale, 2020. $41 (hardcover), ISBN 978-0300244441.
Reviewed for EH.Net by Mary Tone Rodgers, State University of New York at Oswego.
First Responders marks at least the third time that the trio of Ben Bernanke, Tim Geithner, and Henry Paulson have written book-length works about their experiences leading the world through the subprime crisis of 2008 and the Great Recession that followed. (Bernanke also published a book of lectures on the crisis in 2015.) Initially, each one wrote a memoir about their role in responding to the crisis, and then they co-authored Firefighting, a ten-year retrospective published in 2019. Extending the fire conflagration metaphor, First Responders is their third project in which they edit a collection of articles written by experts with whom they collaborated during the crisis. What does First Responders, published in 2020, have to say that’s new or different from the earlier works?
The purpose statement of First Responders looks very similar to that of Firefighting, specifically “Ten years after the crisis we thought it would be valuable to be part of a review,” compared to “Ten years later, we thought it would be useful to look back.” But despite the similarity of purpose statements, the books are very different. First Responders spreads the story out to include the voices of the subject matter experts who worked behind the scenes, the people who constructed the transactions that unfroze the financial markets and restarted the real economy. Instead of simply repeating their own chronological narratives of their crisis responses, in this book the three editors refer the reader to each of the teams which created the lender of last resort transactions. Thirty-one “first responding” subject matter experts write seventeen articles that explain the considerations behind each of the interventions and the recommendations they made to Bernanke, Geithner, and Paulson.
In general, a first responder might be a person with specialized training who is among the first to respond to an emergency. So who are the first responders in this book? About 45% of them had PhDs in Economics or related fields, about 30% of them were lawyers with JDs and the remaining 25% had bachelor’s or master’s degrees in areas such as public administration, finance and international affairs. They were young and old, male and female, Republican and Democrat. The editors parachute us into deliberations in which the first responders hash out the terms of each intervention, weigh the pros and cons, draw the parallels to familiar private market transactions, and debate the counterfactuals where the benefits from acting are weighed against the benefits from not acting.
To draw a clear distinction between the trio’s early works and this edited volume, take a look at the case of the automotive firm bailouts covered in Chapter 13. In his memoir, Paulson wrote of the meeting he took with Rick Wagoner, CEO of GM, on the morning of October 13, 2008, in which Paulson pointed Wagoner to Congress for money, saying Treasury did not have resources for industrial firms. And then, on the very same page of his memoir, Paulson wrote about what he focused on for the rest of the day, the meeting to recapitalize the banks. About a week later, Paulson delegated the consumer finance part of the auto discussion to Steve Shafran, one of the authors of Chapter 13. Bernanke and Geithner’s memoirs have relatively little to say about the auto bailout. The reader still does not learn all the details of the rescue in Firefighting, whose conversational narrative is more suited to a mass audience.
Finally, in First Responders, Shafran and Dan Jester, both Goldman Sachs employees recruited by Paulson to help the Treasury, and Brian Deese, an attorney from President Obama’s White House group, write about the obstacles the auto team overcame and how they crafted a response to the non-functioning auto finance market. Written in more technical language than earlier works, the reader is made aware of the sensitivity of the automotive industry to the availability of liquidity in the financial system, the value of the bankruptcy process as a way forward, the strengths and weaknesses of different types of bankruptcies, the political economies and the outcomes by which success would be measured. We begin to appreciate how an interdisciplinary team of attorneys and financiers from both sides of the political spectrum was necessary to estimate adequate quantities of funds to offer and realistic prices to offer them at. We see the team coalesce around important values: penalize auto managers for poor planning, keep taxpayers’ interests foremost, and find terms that set firms up for long-term success as competitive companies without ongoing government support. In short, we read a very satisfying tale of what it is like to have been “in the room” as deals were crafted by subject matter experts.
What the reader learns about Bernanke, Geithner, and Paulson that was not obvious in the memoirs or in Firefighting is how extraordinarily complicated it must have been to manage so many teams of so many experts. The trio had to know which person had the best skills to apply to which transaction and upon whom they could rely for recommendations on how to proceed. Priorities were not always neatly aligned and competing visions of solutions had to be selected. Indeed, in Chapter 6, the experts note that they never did agree on everything.
At the end of the book, it was disheartening to think that all that expertise just scattered when the crisis ended. But it didn’t exactly. The expertise still resides in our financial system, just in a diffused fashion. About one-quarter of the contributors remain at the Fed or Treasury, one-quarter went to universities, one-quarter to private banks and the last quarter to think tanks. By bringing their stories together in one place as this book does, Bernanke, Geithner, and Paulson and Yale University Press provide a resource that can be used as a reference for the next time we need to create last resort loans.
Mary Tone Rodgers, DPS, CFA, is Adjunct Instructor in Economics and Finance, MBA Program at the State University of New York at Oswego, recently retired from the Marcia Belmar Willock Professor of Finance position. She is currently working on a book with Jon R. Moen for Cambridge University Press, working title J. P. Morgan: The Making of a Private Lender of Last Resort, forthcoming 2024.
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