Bernanke’s Daring Makes Better Impression Than Trichet

Secretive by nature, central bankers are not in the habit of letting journalists follow them around. That’s a shame.

In “The Alchemists,” Washington Post reporter Neil Irwin aims to examine the worldwide financial crisis of 2007-8 by focusing on the role of the central bankers in the hot seat: Jean-Claude Trichet of the European Central Bank, Mervyn King of the Bank of England and Ben S. Bernanke of the U.S. Federal Reserve. Trichet’s successor, Mario Draghi, also makes an important appearance toward the end.

The author is a good writer and able reporter, talents that help him explain clearly what’s going on and sketch a credible outline of each player’s personality. But in spite of the book’s girth, readers will find themselves spending surprisingly little time with the alchemists themselves.

It’s too bad Irwin didn’t have more access, because while they sometimes seem to move about in a haze of heart-clogging meals, fine wines and political intrigue, the central bankers have played a crucial role in keeping the global economy afloat. If you have any doubt as to their importance, remember that some of them also played a central role in endangering the global economy.

Early on Irwin poses the right questions: “What did central bankers know about what was out of whack in the world economy? And when did they know it?”

Pearl Harbor

Reading his answer is like witnessing the innocent slumber of officialdom before Pearl Harbor or 9/11. In the face of an astounding run-up in housing prices and signs that lending standards had collapsed, America’s central bank comes across as clueless.

One economist at the New York Fed complains in 2005 that “‘hardly a day goes by without another anecdote-laden article in the press claiming that the U.S. is experiencing a housing bubble that will soon burst, with disastrous consequences.’” But the boom in housing prices, he said, “‘could be the result of solid fundamentals underlying the housing market.’”

In spite of the Fed’s pre-crash blindness, Bernanke comes off as far and away the best of the book’s three main bankers -- a rare combination of reticence and daring. In a field of big egos, the likably low-key American earns respect by genuinely listening to other people’s points of view.

And although it had nothing to do with his appointment, his scholarly background (which includes, the author reminds us, the study of “policy failures that created the Great Depression”) equipped him perfectly for the extraordinary circumstances in which he would find himself.

No Critique

Unfortunately, Irwin doesn’t seem to have any overriding thesis about the events he describes. The book is more an extended description -- rather than a pointed critique -- of how the alchemists coped, and too often the protagonists themselves are offstage.

Irwin begins with 108 pages of history before we even get to the panic of 2007-8 -- useful material that should have been compressed.

That said, Irwin gets it right when he assesses the checkered performance of the central bankers during and after the crisis:

“As ugly as the global economy looked five years after the onset of crisis, no war had broken out among the great global powers. Europe remained united. There had been no confidence-shattering hyperinflation or, outside of perhaps Greece and Spain, economic depression.”

Perhaps equally important, the crisis -- and the bankers who struggled to cope -- left the world’s leading central banks permanently changed, with a track record of aggressive actions few had imagined before they were taken.

The passage of time and legislation may temper the powers of central bankers. Yet someday another crisis will come, and if the lessons of this one are remembered correctly, the central bankers of tomorrow will act more boldly and decisively than did most of their counterparts in our own time.

“The Alchemists: Three Central Bankers and a World on Fire” is published by Penguin Press in the U.S. and Business Plus in the U.K. (430 pages, $29.95, 14.99 pounds). To buy this book in North America, click here.

(Daniel Akst writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)

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