A Review of The Courage to Act, by Ben Bernanke

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 17, 2015 3:21:28 PM

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The Courage to ActBen Bernanke wrote The Courage to Act to lay out his view, from inside the belly of the beast, of what happened during the 2008 financial crisis. It is worth reading—you will not find a clearer, more informed, and even essentially dispassionate account of the biggest economic crisis in the past several generations. I highly recommend it to anyone who has an interest in understanding not only what happened but why.

Bernanke’s professional training, as both an economist and a teacher, is amply on display. The first, of course, drives why he was there and what happened. But the second is equally invaluable in helping the interested reader understand just why the crisis happened, what the potential consequences might have been, and why he and the Fed took the actions they did. The writing is clear and detailed, and it even has the occasional dash of humor.

Measures of success

In my opinion, one measure of success in a memoir of this type is whether you can credibly envision yourself in the position of the author, understanding the issues and wrestling with the decision you might have made in that situation. Bernanke succeeds on this metric; I found myself reliving the crisis, this time from the perspective of the Fed. Bernanke lays out each step toward the crisis, with the options and decisions highlighted, along with reasons for and against. By the time the crisis actually breaks, you understand how we got there—and why. You also understand just exactly what the stakes were. We stood at the edge of the abyss in many ways, and that comes through in the book.

The other measure of success is whether the book uses the experience of the crisis to provide a context for the present, and here again Bernanke succeeds. I found myself repeatedly and very uncomfortably noting echoes between the early 2000s and the present and considering present-day policy decisions—such as Fed rate increases—in the context of the 2000s. The book runs through early 2015 and, in many ways, ends with a discussion of current policy, although it’s not specifically directed there.

Some weaknesses

One of the weaknesses of the book is its unwillingness to draw more connections between then and now. Dr. Bernanke, as he told me, is not willing to be seen as second-guessing the Yellen Fed, a principled stance that I agree with. But the unfortunate consequence is that we don’t have that discussion, which would have added even more to the book’s value. I look forward to his next book, perhaps when Yellen leaves office, that may outline his views more specifically on what policies we should be pursuing.

The other area that could have been improved, in my opinion, was to provide more context outside the walls of the Fed. This is a very Fed-centric book, which certainly adds depth, but somewhat at the expense of breadth. Events and people are largely treated as seen from the Fed itself. Although some players come out well—Hank Paulson and Tim Geithner, in particular—others do less well, and in many cases, it’s due to policy conflicts with the Fed. More context would have been useful to better understand where those conflicts came from.

Overall, an excellent book

With those minor and perhaps inevitable caveats, though, this is an excellent work of economic history, a terrific ground-zero view of the major economic event of the early 21st century. As a crisis recedes into the rearview mirror, the real questions are: “How did it happen?”, “How was it solved?”, and “Was it really that bad?” Reading this book, you will understand all three of the answers.

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