What Did the Great Recession Teach Central Bankers?

Interest rates nearly at zero for five years and counting. Trillions of dollars of purchases of long-term bonds and mortgages by the Federal Reserve. Bailing out the banks, guaranteeing money-money mutual funds and putting the banks through aptly named stress tests. Restructuring both the business model on Wall Street and the nature of financial regulation. The Great Recession of 2007-09 and disappointing recovery that followed have changed the art and science of central banking as radically as the Great Depression did.

It’ll be decades before we know which steps were constructive and which were not – and just as long before the inevitable unintended consequences emerge. But it’s not too soon to ask wise men and women – including some veterans of the war against the worst financial crisis in 75 years – to contemplate the lessons learned and the challenges ahead.

So the Hutchins Center on Fiscal and Monetary Policy at Brookings did just that. To address monetary policy, we turned to Ben Bernanke, who led the Fed during the crisis; Don Kohn, who was Fed vice chairman; John Williams, the president of the Federal Reserve Bank of San Francisco whose academic work greatly influenced the Fed’s strategy for preventing a repeat of the Great Depression; and Martin Feldstein of Harvard University, who has been skeptical of the Bernanke Fed’s strategy.

To examine at the unfinished rehabilitation of a financial regulatory apparatus that clearly was inadequate we looked to Paul Tucker, who was charged with overseeing financial stability at the Bank of England, and banking lawyer Rodgin Cohen of Sullivan & Cromwell. For perspective, we recruited Christina Romer of the University of California at Berkeley, who was among President Obama’s advisers, and Kenneth Rogoff of Harvard University, a former chief International Monetary Fund economist. 

The most telling moment came when Liaquat Ahamed, the Pulitzer Prize winning author of Lords of Finance, asked Mr. Bernanke if he had suffered any sleepness nights. Mr. Bernanke said he had, and added: “It was kind of like if you’re in a car wreck. You’re mostly involved in trying to avoid going off the bridge, and then later on you say, ‘Oh my God….’”

To share the important – and interesting – conversation, we’ve assembled the papers commissioned for this Hutchins Center inaugural event and a transcript of the subsequent discussion as well as a transcript of Mr. Ahamed’s revealing interview with Ben Bernanke in a 110-page book, Central Banking After the Great Recession: Lessons Learned, Challenges Ahead, published April 28 by the Brookings Institution Press.