As Labor Day approaches and we slip out of Summer and into another September, many think of 9/11 and that this September is yet another anniversary of that horrific, unimaginable tragedy. But, September will be another milestone anniversary this year – the anniversary of what some are calling the Great Panic.
In one of the first books to comprehensively examine the extraordinary financial collapse of September 2008, “In FED We Trust: Ben Bernanke’s War on the Great Panic” by David Wessel, and surely far from the last such book, we are reminded of just what was going on the last time we tore the month of August from our calendars and turned to the September page. This one focuses on Ben Bernanke and the unprecedented situation that swallowed up Lehman Brothers. All the heroic efforts to bail out Bear Stearns earlier that Spring had provoked so much controversy about the correct role of government, if any, in rescuing financial markets who were about to set off an H-Bomb in their own universe. Lehman’s bankruptcy, the biggest in history at that time, nearly lit the fuse on a global financial meltdown.
On August 19, 2009, it was announced that the attorneys’ fees on account of the massive Lehman Bankruptcy case had passed the $100 Million mark – talk about lawyers’ feeding-frenzies! Interested readers can access a website devoted to the Lehman Bankruptcy, linked to yet others, in order to see exactly what $100 Million in legal services buys these days.
Wessel brings out the extreme irony that Bernanke, one of the leading scholars of the why’s and wherefore’s of the Great Depression of the 1930’s, became one of the men who were thrust into financial history’s spotlight last September. A key thesis of Wessel’s book is Bernanke’s strongly held belief that the Great Depression of the 1930s, and all the extraordinary pain and historic consequences that it engendered, all could have been avoided if the Fed had injected liquidity into our economy as aggressively as the circumstances indicated were necessary. Bernanke, last September, was determined to do that, indeed, whatever it took to prevent a repeat of the 1930’s.
While many including Wessel acknowledge that some of what Bernanke and others (Paulson and Geithner, were among the many who went sleepless last September) did – the most extraordinary government interventions in our nation’s history, by far –in fact, did save us by preventing the Great Panic of 2008 from becoming the Great Depression II, consuming the world’s telecommunications-linked economies in the child’s game of “All Fall Down.” Others are not so sure, and still others (me, for one example) caution that the ‘jury is still out’ on this one.
In October of this year, the Fed will allow its $300 billion program to buy Treasury bonds to lapse, indicating the Fed’s belief that this kind of aggressive support will no longer be necessary by then. This is one of the things (and there are many, many others) which have pumped liquidity into America’s and the world’s economy and given a supposed recovery a chance to gain a foothold before our economy once more has to walk ahead on its own two feet.
Wessel says that the withdrawal of all that extra money being pumped in by the Fed, in order to keep all things financial just as liquid as necessary, will have to be timed by the Fed to occur absolutely perfectly and with the most extreme delicacy. Waiting to pounce are the financial Scylla and Charybdis, those two sea monsters of Greek mythology, situated on opposite sides of the Strait of Messina between Sicily and Calabria – screaming, pedal-to-the-metal, inflation, on the one hand, and, on the other, the specter of relapsing into the kind of deflation that made Japan’s Lost Decade so devastating, and for so long. Fingers are firmly crossed.