Mitchel Y. Abolafia: Stewards of the Market: How the Federal Reserve Made Sense of the Financial Crisis.

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Date: July 2021
From: Business Economics(Vol. 56, Issue 3)
Publisher: Springer
Document Type: Article
Length: 2,042 words
Lexile Measure: 1400L

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Mitchel Y. Abolafia: Stewards of the Market: How the Federal Reserve Made Sense of the Financial Crisis

Harvard University Press, 2020

1 Introduction

This is a great book. It describes in granular detail the "Surprise; Confusion; and Groping Forward" of Fed Chairman Ben Bernanke and his fellow participants on the Federal Open Market Committee as they dealt with the economic paradigm that was seemingly shifting beneath their feet during the Great Financial Crisis ("GFC"). The reader gets to witness an almost live view of economic history through the eyes and perspective of a sociologist/cultural anthropologist, a refreshing alternative to the viewpoints of journalists, economists, historians, and policymakers themselves.

From our vantagepoint in 2020, we know the stories of what happened and how the Fed stabilized the financial system and the macro economy. We also grasp that the Corona-virus Pandemic of 2020 is changing our economic paradigm from the post-GFC paradigm that we were beginning to feel accustomed to. Against this backdrop, the lessons of how economic policymakers, especially the Fed, cope, and adapt to rapid changes in the economic environment, are especially relevant.

2 A unique methodology

This book is notable for its almost complete absence of macroeconomic statistics; it is devoid of econometric models; there is no counting of bank failures or calculations of home foreclosures or bank loan-loss write downs. We have heard these stories ad infinitum. The book analyzes the GFC through "Archival Ethnography," using a sociologist's techniques of "sensemaking." This technique uses automated textual analysis ("ATA") of the FOMC's meeting transcripts to discern from the FOMC's own words, discussions, and debates, how Ben Bernanke and the Committee participants eventually began to listen to, then understand, and then comprehend the new financial forces that reshaped the world around them. Only after they began to comprehend their new economic environment could the FOMC formulate and execute regulatory and monetary policies to stabilize the situation. This takes time, lots of time, and in the middle of a developing crisis, time is one of the scarcest resources available to policymakers. The time it takes for individual leaders, and their organizations, to grasp the dramatic shifts in their environment, let alone to address these shocks with existing tools and newly created policy tools of questionable legality, adds new meaning to Milton Friedman's statements about "the long and variable lags in monetary policy."

3 listening-in on the room where (much of) it happens: (with a tip of my hat to Lin-Manuel Miranda and Hamilton: The Musical)

The primary data source for this book is the transcripts of the FOMC meetings that took place between August 2007 and December 2008. The Fed has released these transcripts for meetings as far back as 1977. With a lag of roughly five years, the FOMC releases an edited transcript of each FOMC meeting. To protect its sources of confidential information, especially sensitive content involving companies or foreign countries, some content is redacted by the FOMC's legal and economic policy staff. In short, the transcripts provide a degree of translucency...

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Gale Document Number: GALE|A673455239