Firefighting the financial crisis and its lessons pdf download

We all know what he stands accused of. Yes, fine, he got rather inventive during the crisis, he did some krazy stuff even FDR would not dare do in his most improvisational breakfast-in-bed times, but that saved the day. What people want to know is why he kept rates down for so long after the crisis. Even his biggest fans do acknowledge that a bad part of his legacy is that some very well-connected people took advantage of the permanently low rates the homeowners were meant to benefit from and made for themselves some fortunes like we have not seen since the twenties.

Whisper it, folks, QE bred inequality. Inequality, the Firefighters will have you know, had been increasing for at least a decade prior to the crisis. This was masked by the fact that there was growth. It had been long in the making. Charts are in the back that prove this, in case the relevant prose is not good enough for you. So there you have it. Something for everyone. It was the year Just as I was thinking that things could only get better from here, the scales tilted and everything went on a downward spiral.

Within a span of 6 months, I was left searching for jobs - twice. What was looking like one of the most memorable periods of my life for all reasons good, turned out to be an unforgettably forgettable period. The conflagration that was threaten It was the year The conflagration that was threatening to burn down the Wild West of American economy — the Wall Street. While wild fires are normally limited to the geographies where they started, this financial inferno was spreading far and wide, threatening to bring down the global economy, thanks to its interconnected nature and growing ambitions.

Though I had an inkling of what caused the Financial Crisis of , resulting in the not-so-memorable changes in my life, I was curious to learn more about it. Subprime Mortgages — these two words caused all that chaos. To tell you the background in simple terms, just like me the world was highly optimistic in the years leading to Investors were willing to bet on high-risk investments that promised high returns. Banks and financial institutions were flooding the market with liquidity. People were starting to chase the dream of owning a house.

As a result, there was a boom in real estate in the US and elsewhere, with real-estate prices increasing every day. Financial institutions that were lending to fuel this boom wanted to raise more funds to lend more.

One of their ideas was to repackage these loans into mortgage-backed securities MBS and sell if off to return-craving investors, on promises of regular returns. With the demand for MBS growing more and more, the financial institutions started giving home loans to even uncreditworthy people — people with no solid income, no credit history and no assets to guarantee the repayment.

On one end, investors were pouring in money, driven by greed, and on the other, banks were throwing it all away by lending it to all and sundry, based on overconfidence bordering on arrogance.

It was all based on the assumption that the real-estate demand will keep up and the prices will go on increasing. Then came the slump in demand for housing and suddenly there were more houses than takers.

Also, the subprime mortgages were starting to go sour. With defaults piling up and the investors starting to pull out their investments fearing losses, the financial institutions that were indulging in this perilous business were starting to fall like dominoes.

Their collapse resulted in serious recession and unpleasant fallouts elsewhere too — in the form of job losses, negative spends, resultant decrease in demand and in turn, more job losses — including that of people like me. This book is written by the people who were in the forefront fighting that financial hellfire — Ben S. Paulson, Jr. Advantages of reading a book written by people who fought the fire is that you expect to get a front-row view of the crisis as it unfolded.

The book lives up to that expectation. With their experience and wisdom, they have well explained the causes of the crisis, events during the crisis, the casualties and the cure administered. Comprehensive and unbiased, they have pointed out the pros and cons of the corrective measures taken by both administrations — by George W.

Bush and his successor, Barack Obama. Having written the book by , they have also shared their thoughts on how America is well and ill-equipped to handle a similar crisis at present, especially as it stood polarized under an uncouth president like Donald Trump. One of the negatives is that they have written the book in a diplomatic manner and from too high a view to recount the pains of people at the bottom of the financial pyramid.

Nor is the resulting global financial pandemonium spoken about in detail. Clear and comprehensive, this will be one of my favorite books on the financial crisis ! Aug 25, Andrew rated it it was amazing Shelves: economics-business-finance , politics-and-political-theory , united-states-of-america.

Bernanke, Timothy Geithner, and Henry M. Many analysis of the financial crisis have been written over the years, almost to the point of abundance. Much like books on Trump, populism, nationalism and so on being released in today's political climate, the financial crisis was the topic of the era.

It is a blow by blow account of the crisis, as well as a fantastic analysis of what went wrong, what could be better, and what needs to be done in the future to ensure the United States can combat further financial disasters. This book starts with a blow by blow account of the beginning of the crisis, chronicling the inflationary growth of real estate investments in the financial market leading up to the crash in This inflationary bubble was the result of massive deregulation of the US financial market by the US government in the Gilded Age of Capitalism leading up to This deregulation created massive amounts of complex financial vehicles to move wealth, encouraging the growth of shadow banking systems in the US, and encouraging existing banks to invest in, and move risk into unregulated shadow banks and money markets, all while cutting capital stocks and increasing leverage.

This system was created do to a lack of concern for risk by US regulators and financial institutions - the good times were good, and nobody expected a crash.

When a crash did occur, it caught everyone by surprise, and caused a panic in financial markets, as both bad investments, and anything tainted by them, were quickly sold as investors fled and withdrew cash, funding and called in outstanding loans in a frenzy. This frenzy saw the collapse, fire-sale, or government takeover of numerous massive financial firms such as AIG, Merrill Lynch, Wachovia, Lehman Brothers, and so on.

Billions upon billions of dollars evaporated, and the global economy itself was put into recession. US regulators began to step in at a higher level, purchasing too big to fail financial institutions, and creating a raft of new legislation to ensure the system did not fall apart. This was all done in the face of extreme scrutiny and criticism from both political parties in the States. On the left, many argued that the rich should suffer for their financial mismanagement, and on the right, many argued against moral hazard, stating banks should fail as a lesson to others.

Even so, a general collapse of the financial institutions of the US would have been devastating politically, and possibly around the world. Stepping in caused the system to generally stabilize, although recovery continues to this day. The afterward of this book is an analysis of whether the US is prepared for another crisis. The answer is largely no. Deregulation has largely continued after the recession, although the authors note greater scrutiny of financial firms is now general practice.

The authors argue that the US is somewhat more prepared that in , but that the threat of recession continues. The authors also note that in the current political climate in the US, as bipartisanism continues to increase and become more prevalent, that government officials will have great difficulty reaching decisions as they did in , which may paralyze the system during future crisis.

The increasingly unstable situation in global trade, due to the US' insistence on renegotiating trade deals with allies and targeting rivals with trade wars, is a destabilizing factor. The extremely hot stock market in the States is also concerning - is this another financial bubble?

The authors note that the US is not out of the woods, and caution more conservative financial regulation to ensure banks have more capital on the books, less leverage, and more tools and options at regulators disposal to combat financial issues and ensure the bank runs of do not return. All in all, a very informative book. The book is capped off with a very interesting series of charts, figures and graphs outlining the history of the recession, its impacts, and aftermath.

As a post-op book of the crisis, written by the three main players, this is one to read for sure as a definitive and authoritative account of the crisis now that is is largely said and done.

It offers fresh insight, intimate perspective, and clear thoughts and results. Although it is of the perspective of three of the main players - which may turn some off for their involvement - this book should remain in ones mind as a major work on the topic, and an excellent perspective for those looking to build a holistic viewpoint.

A fabulous read, and easily recommended for any looking to refresh their knowledge on the topic, and read about the entire crisis from an on the ground perspective.

View 1 comment. Nov 20, Tara Brabazon rated it liked it. This is a calm book. It is a rational book. It tells the story of how the financial crisis was 'managed' by the state. It tells the tale about how the banks and mortgage providers were bailed out by public money. It has a cool tone. It seems rational. But we know it was not. The Global Financial Crisis was created by greed, vanity, ego and profound ignorance and foolishness. A collective of rich white men were prepared to let the economy burn, jobs be destroyed and lives shattered so they This is a calm book.

A collective of rich white men were prepared to let the economy burn, jobs be destroyed and lives shattered so they could summon a big payday.

They failed. And they brought us all down with them. The consequences of the public bailout is that - a decade later - health and education is deeply underfunded because those bankers were supposedly 'too big to fail. Significantly, when the tale is told, the conclusion - written in our changing political hurricane - is stark and - perhaps - reflexive.

I'll summon a few telling examples. But I remain staggered that the GFC is endless swept away to the margins of contemporary history in favour of 'a war on terrorism' The GFC demonstrated that our system is rotten.

The structures are rotten. Our ideologies that value the gathering of money regardless of its cost to our environment and our people brought the world to its knees. And that system was propped up by public money and state regulation.

Those anti-state forces and private interest groups are laughing at us. It is in the interests of the powerful to forget. It is in the interests of the disempowered to remember, with vitriol and real anger. Apr 28, Brad Boyson rated it it was ok.

I was expecting a lot more technical insight, in hindsight. May 14, Peter rated it really liked it Shelves: economics. The Triumvirate of Safety has gathered to write Firefighting: The Financial Crisis and its Lessons , a short history of the nature and resolution of the financial crisis. These three men at the very center of the conflagration will tell us what went on, why it was such a surprise, what was The Triumvirate of Safety has gathered to write Firefighting: The Financial Crisis and its Lessons , a short history of the nature and resolution of the financial crisis.

These three men at the very center of the conflagration will tell us what went on, why it was such a surprise, what was done, and how the crisis changed our financial regulations and monetary policies. My interest in this is both professional and personal. Professional because of my career as a financial economist, ending with a stint at the Federal Reserve System; personal because I was among the many of my ilk who didn't see the train wreck coming in spite of warnings by Karl "Chip" Case, a friend and highly respected real estate economist who was a professor at Wellesley College.

Chip was way ahead of his time, and I was among the many blind mice. The economic terrain for this review is consistent with the Triumvirate's experience, but shaded by my own take on events. The conclusions I draw are not necessarily theirs, so if you are interested in precisely what they say, read the book. It's a worthwhile description of the backstage forces that directed the path-breaking policies of the Federal Reserve and Treasury during the crisis.

The Back Story The last great financial collapse—and the last episode of major new financial regulation— was in the early s. In the following 75 years there was remarkable economic stability, particularly from to , and popular myths like "housing prices don't go down" had long replaced memories of years when they did.

By we had an old structure of financial regulations but an entirely new financial reality. That role had moved to the shadow banking system of investment banks, insurance companies, brokerage companies, mutual funds, and other institutions that were major providers and users of credit, and were also relatively free from the banking regulations of the s.

Among the first big breaks was the acquisition of Travelers Insurance by CitiBank. The capital cushion at brokerage companies and shadow banks was slim at best, and it was low at commercial banks as well. In addition, new leverage-creating financial instruments like credit default swaps and other derivatives were hitherto unrecognized sources of financial risk.

So risk was increasing while equity was decreasing. Among these was the development of the Collateralized Mortgage Obligation CMO that would allow investors to create virtually risk-free investments in mortgages, or so it was thought.

These innovations led to an increase in systemic risk as loans were made to subprime borrowers who couldn't normally get them under traditional credit standards. Institutions were holding portfolios of long-term securities of dubious value while financing them with short term liabilities like commercial paper.

This set the system up for a credit freeze if the long-term assets fell in value, much like the Penn Central crisis of the s but with much greater ramifications. This was the basis of the first major shadow bank failure at Bear Stearns. These became vehicles for socially active lending to favored groups , groups that might not merit credit through normal channels.

Still, in my view, the underlying problem was not just the legacy of s financial regulations, the financial innovation, and the proliferation of social lending.

Underneath it all was an underlying sense of security derived from ignorance about the effectiveness of regulation and about the new financial innovations. This is an eternal problem: financial innovation always outstrips financial regulations. Regulations are constructed in a rear view mirror by folks who are slow to adapt to new things we call them Members of Congress , and they are enforced by folks with no experience at identifying new sources of risk we call them Bureaucrats.

In contrast, financial innovations are constructed by quick-witted entrepreneurial minds who are actually in the trenches, see the gaps in existing regulations, want to do an end run, have or hire quick minds to construct the end run, and don't intend to hang around until the party is over.

There isn't a snowball's chance in Hell that the former will be ahead of the latter! It's not a message people want to hear, but regulation is not, and never will be, the effective instrument that we imagine—it's a short-term solution and a long-term palliative.

Financial Psychology in the New Era The particular financial innovations that undid the economy of Main Street in were CMOs, particularly those containing "subprime" mortgages. These were individual mortgage loans to borrowers on the financial edge that had been packaged together in a bundle and sold to investors. Each CMO was advertised as "low risk" because, it was thought, the probability of default on any one mortgage in a CMO was independent of the default probabilities of the others—Jane Roe's default on her mortgage would not be related to John Doe's default on his mortgage; bad default experience in the South had no implications for experience in the West.

This principle was derived from simple statistics: aggregating independent risks reduces overall risk; it's the principle underlying all insurance contracts. But while risks might be uncorrelated under normal conditions, in a financial crisis all values are highly correlated — everything goes down in value. This aggregation of risks was not alone in bringing down the financial system. There had to be a cataclysmic flaw in the financial system to trigger the disaster. That flaw was in the psychology of risk management, in particular, it was in the fundamental problem of moral hazard , a problem well known to insurance companies.

The moral hazard problem is simple: if I am insured against my house burning down, I will invest less in preventing fires by buying alarm systems, installing sprinkler systems, cleaning up debris, and so on. So the act of insurance creates the fact of increased risk. Insurance companies know this and monitor the properties they insure to confirm compliance. But few saw that the appearance of insurance through financial innovations like credit default swaps led to an increase in financial risk-taking; theory said that it just distributed existing risk toward those more able to bear it.

Consider the innovation of the CMO Collateralized Mortgage Obligation , the security package at the heart of the debacle. Putting together a CMO requires several steps, each done by a different party with a different agenda.

Yes, the authors say, in a final chapter that is downright scary In other words, we seem to have learned the wrong lessons from our brush with disaster. The tragedy of this slim, self-satisfied little memoir about the — financial crisis is not what it gets wrong. Indeed, four of its central arguments are important and exactly right The problem with Firefighting , a justly pessimistic, three-headed lament This is a book whose authors take turns politely praising each other in the third person, but it has nothing to say about the gilded revolving door between Washington and Wall Street, or the role of the inbred legal corruption that riddled the financial sector Despite a hand-waving acknowledgment that the financial crisis 'inflicted tremendous pain,' the central takeaway of Firefighting is, basically, 'We saved the world.

But Main Street was force-fed the Great Recession that inevitably followed the financial crisis, while the bankers who caused it continued to dine at the Four Seasons — often in the company of once and future firefighters.

Firefighting is mercifully short and succinct, yet all the key elements of the chronicle are here The book is also surprisingly well-written However, for those who followed the crisis more closely the interest does not lie in new information, of which there is really none, but in how the authors assess their own efforts with the benefit of hindsight.

Needless to say, they think they got it mostly right, while honourably admitting they had to scramble and improvise given the opacity of the financial sector when the crisis started and the speed at which previously unthinkable events unfolded No doubt these policymakers did a solid job in extraordinarily challenging circumstances.

They make a good case for the immediate ability by the agencies to react to future crises. Second, the authors are duly concerned with the functionality of Keynesian economics. Government intervention in times of crisis is only one-half of the economic theory.

Keynesian economics also calls for replenishing the coffers during expansions. This is not occurring. Instead of bringing the deficit down, our debt levels are increasing. Thus, the authors believe, both monetary and fiscal policy will be hampered in firefighting the next economic downturn.

The argument between interference and non-interference in the markets is central to economic philosophy. The debate between the Classical school of thought and the Keynesian Theory is reflected today in our divided politics.

I encourage all to read Firefighting including members of Congress. One of my favorite websites to share with new students of economics is the US Debt Clock. Visiting this site is eye opening. Similarly, Firefighting will also open eyes. For example, the book acknowledges the public relations nightmare of propping up AIG. Personally, I saw and was offended by the lavish expenditures of AIG during the height of the meltdown.