On January 10, the Brookings Governance Studies Program, the Miller Center, the University of Virginia Darden School of Business, and the UVA Law School hosted an event that emphasizes the political and global dimensions of the 2008 financial crisis, specifically exploring such questions as: How did a new Congress-and a new president-respond in the aftermath? How does the 2008 financial crisis compare to other crises in U.S. history? And, perhaps most crucial, how well-prepared are we today to handle inevitable future crises?
Ten Years Later: Lessons From The Financial Crisis Of 2008 – Part 4
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Thank you very much Bill. To that kind introduction I would like to add my thanks and greetings to Larry Summers who in my mind is a model of the citizen academic public servant. Obviously in the memory of many of us here is associated with challenging moments and policies judged to be controversial in one quarter or another. And yet it's clear that leadership among all the attributes of leadership one of them must be a fearlessness in confronting challenging problems. And so our opportunity today is to consider the context of the crisis of 2008. He's had experience in the peso crisis of the 1990s. Been close to other near misses along the way and he's given a great deal of thought to the current outlook and situation that the United States and the world economy faces and so our opportunity today is to plumb these various topics with someone who had a place at the table. I would also like to really reemphasize a theme that Bill and thoughtless sounded at the start of the day which is that the aim of today's entire conference is to is to try to connect dots among crises through time as well as crises. Cross-sectional what's what went on in 2008 not only in the U.S. but elsewhere in the world. What's going on today not only in the U.S. but elsewhere in the world. So we have an extraordinarily broad canvas on which to paint all together. And I thought what I'd do is launch a few questions at our guests and then pause and invite questions from you all in the audience here. Participation is vitally important as has been the case in prior sections of our day. I'll I'll invite two or three questions in a bunch and then let our guests respond as he will. So sir welcome. You were one of the original architects of a policy that's been dubbed Shock and awe shock and awe harkens back to the the phrase of the first Gulf War and the sense of just plowing into the adversary with incredible resources and force but then applied during the peso crisis it brought to the fore a very different set of resources than the military might have figured. But take take that phrase Shock and Awe did we bring enough shock and awe to the crisis of 2008. If so why and if not why not.
No and then yes and then no. Let me tell you what I mean. If you looked at what was happening to the economy in 2007 if you looked at what was happening in the run up to Bear Stearns failing if you look at what happened after Bear Stearns failed there was obviously a gathering storm and nobody did much except react banks were allowed to continue paying dividends.
Nobody was forced to recapitalise anything. The situation drifted along. There should have been shock and awe of capital. I'm kind of credible on this in the sense that if you read my columns at the time they were saying this and nobody did much the Fed was sitting there three minutes worrying about inflation and saying everything was going to be OK and it was obviously a mistake.
So no initially crucial period of six months between the time Lehman fell and the period after the stress test America rose to the occasion. The banks were substantially recapitalized. Significant fiscal stimulus was delivered substantial intervention.