BOOK REVIEW ARTICLE Responses to the Great Panic and Some Questions They Raise Dwight D.

. Murphey Wichita State University, retired In Fed We Trust: Ben Bernankes War on the Great Panic David Wessel Crown Business, 2009 Several books explain the many causes of the recent economic catastrophe. Many more are bound to analyze the response that governments and central banks are making to the crisis. We look forward to such analysis with great interest, since there is much to be learned about what is indisputably one of the major economic collapses in history. David Wessel is the economics editor of The Wall Street Journal and winner of two Pulitzer prizes. His In Fed We Trust is one of the first books to examine the Panics aftermath. Although valuable, it leaves a lot to be told about the details of the responses and displays an unfortunate lack of curiosity about the many questions that cry out to be answered. It will fall to others to reflect on the deeper issues of monetary and fiscal policy. Just the same, Wessels book fills an important niche. It is basically reportorial, and supplies a day-to-day, often hour-by-hour, account of the situations that loomed in front of Ben Bernanke as Chairman of the U.S. Federal Reserve Board, Henry Paulson as U.S. Secretary of the Treasury under the George W. Bush administration, and Timothy Geithner first as president of the Federal Reserve Bank of New York and then as Treasury Secretary under the Obama administration and of the wrenching process they went through in deciding what to do at each turn in the road. We cant hope to relate in exhaustive detail the chronology Wessel discusses, but must limit ourselves to recounting its highlights. We will conclude by discussing several of the questions of policy and of equity that are posed by the responses to what is now known as the Great Panic. Chronology of Successive Crises and Responses 2007. In March 2007, New Century Financial, one of the largest subprime lenders, went into bankruptcy. As the U.S. housing market collapsed during that summer, the two hedge funds of the enormous, internationally-connected Bear Stearns investment bank went into bankruptcies that resulted in their liquidation. Soon thereafter, the European Central Bank injected into the banking system what Wessel calls (for that time) a stunning sum -- $131 billion. The U.S. Federal Reserve cut its interest rate by a percent, and followed that with an additional percent decrease in early 2008. (By the end of 2008, the rate was cut to zero, with a commitment to leave it there for a considerable time. It has remained there for at least the next year.) 2008. A subtitle to Wessels book is How the Federal Reserve became the fourth branch of government. Although he gives the expansion of the Feds role far less attention than would seem required by its being an intended theme, we nevertheless see

what he is talking about as the chronology continues: he reports that in March 2008 the Federal Reserve shattered seventy years of tradition and lent $30 billion to induce JPMorgan Chase to buy Bear Stearns. The reason this was tradition-shattering was that Bear Stearns was a firm the Fed neither regulated nor officially protected. At all times until then, the Feds role had been as a lender of last resort that would extend credit only to traditional banks and then only to those that were in sound condition (but were jeopardized by depositors clamoring for their money). (As an aside, it is interesting to note how little hold economic nationalism has within the thinking of todays globalized leadership: Treasury Secretary Paulson initially tried to get Deutsche Bank to buy Bear Stearns. When, later, Wachovia was up for sale, its CEO tried unsuccessfully to get a Spanish firm, Santander, interested.) The fourth branch observation is further justified by the fact that the Fed can create and distribute literally trillions of dollars of new money simply by printing it (now electronically) without needing to go through Congress for an appropriation. It was also in March 2008 that the Federal Reserve established the Term Securities Lending Facility (TSLF) as a vehicle for purchasing $200 billion of mortgage-backed securities, paying for them with U.S. Treasury securities. In July, the U.S. Congress empowered the Treasury Secretary to deal with the non-banking financial institutions which had burgeoned so rapidly to become major players in world finance. Then in August, Bernanke and Paulson set about seizing Fanny Mae and Freddie Mac,1 the two government-sponsored, shareholder-owned mortgage giants. These institutions had led the way in promoting and buying subprime home mortgages, which they then bundled into securities for sale. The next month, the trio of Bernanke, Paulson and Geithner made a desperate search for someone to buy Lehman Brothers, an investment (not a commercial) bank; and when they couldnt find one, decided not to bail it out. The ensuing bankruptcy was the largest in American history and was followed by a devastating intensification of the Great Panic. Credit froze. It appears that the financial system as a whole had counted on the U.S. monetary authorities not letting any of the financial behemoths fail, even if they werent part of the traditional banking system, and panicked when it saw that there was no sure-fire guarantee. (Barclays, a British firm this time, bought Lehmans core business from the bankruptcy court.) During the next week, the trio took a series of steps: . they married the brokerage house Merrill Lynch to Bank of America; . they all but nationalized the American International Group [AIG], Americas largest insurance company, pumping in $85 billion from the Federal Reserve and taking an 80 percent government ownership stake; . they transformed Goldman Sachs and Morgan Stanley, two investment-bank giants, into Fed-protected bank-holding companies; and . they began seeking Congressional approval for a $700 billion bailout bill to fund Treasurys efforts to prevent Americas larger banks from collapsing. The federal Office of Thrift Supervision stepped in on September 25 to seize the aggressive mortgage lender Washington Mutual and its 2,000 branches, turning them over to the Federal Deposit Insurance Corporation. The FDIC then arranged a purchase of the
1

These are the popular nicknames given to the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), respectively.

bulk of WaMus business by JPMorgan Chase (the same firm that had bought Bear Stearns). Both the WaMu shareholders and the bondholders lost everything. At about the same time, the trio prevailed upon a reluctant chairman (Sheila Bair) of the FDIC to invoke an emergency law to subsidize Citigroups attempt to strengthen itself by acquiring Wachovia, the nations fourth-largest bank. (The Citigroup deal fell through and Wachovia was purchased by Wells Fargo.) On September 29, Congress rejected the $700 billion bailout plan for the large banks (community banks werent included). The bailout was, however, approved on the second try. Although Paulson had presented the bill as being to buy toxic mortgage assets (and in fact it was called the Troubled Asset Relief Program[TARP]), by November he changed his mind, moving to a policy of applying the money to shore up the capital foundation of the nations banks and to try to get consumer lending going again. Oddly, Wessel says the volume of toxic assets on the banks books had grown so large that $700 billion was no longer enough to buy them all. We say oddly because the bad subprime mortgage loans had long-since been mixed with other loans in securities that virtually no one could understand, casting a pall on the entire multi-trillion dollar securities market. If the structure of global finance had been understood, the insufficiency of a mere $700 billion to meet the toxic asset problem would have been apparent from the beginning. It was in November that the Federal Reserve and the Treasury unveiled the Term Asset-Backed Securities Loan Facility (TALF) which they had established the prior spring to buy securitized consumer loans. (TALFs actual purchase of such loans didnt start, however, until March 2009, several months after the panic began.) The massive size of all this has been summed up by Bloomberg: By the end of November [2008], the government had committed $8.5 trillion, or more than half the value of everything produced in the country in 2007, to save the financial system. An additional $3 trillion was added by the European Union.2 Wessel tells us that by the end of 2008, the Fed had its own loan program that was designed to provide liquidity to the commercial paper market, extending credit of up to $350 billion by January 2009. It did this through a special purpose vehicle called the Commercial Paper Funding Facility. At the same time, the Fed increased its direct lending from $940 billion in September to $2.3 trillion by the end of 2008. It lent $100 billion to now government-owned Fannie Mae and Freddie Mac. 2009. The stimulus package (more formally, the American Recovery and Reinvestment Act or ARRA) was enacted in February, within days after the inauguration of President Barack Obama. It was a package of $787 billion to provide tax cuts and spending increases. In March, TALFs ceiling was raised to $1 trillion, and the program was revised to include not just consumer loans but also business loans and commercial mortgages. If we step outside Wessels account, we see that, as reported by the Associated Press, the Federal Reserve embarked on a purchase of $300 billion of long-term government bonds and another $750 billion of mortgage-backed securities that had been guaranteed by Freddie Mac and Fannie Mae. Further, the Fed said it would consider expanding another $1 trillion program to boost the availability of consumer loans for autos, education and
2

Report by John Lippert, Friedman Would Be Roiled as Chicago Disciples Rue Repudiation, Bloomberg.com, December 23, 2008.

credit cards, as well as for small businesses. As an aside, the AP report asked where does the Fed get all the money?, and answered it prints it.3 On June 1, General Motors entered Chapter 11 bankruptcy reorganization. For Americans old enough to remember the countrys once-mighty industrial prowess, this ranked as unthinkable, since, along with Ford, GM had long been a giant of American automotive manufacturing and indeed of the American industrial system in general. $50 billion in Treasury assistance was pumped in, along with $9.5 billion from Canada. In return, the U.S. government took a 60 percent ownership stake. Canada received 12.5 percent, the United Auto Workers union 17.5 percent, and the unsecured bondholders 10 percent. The stockholders were wiped out.4 Despite all that was done, a news report in mid-July indicated that small businesses were still finding it hard to get bank loans.5 (Another article in September, almost a year after the bailout bill was passed, continued to point this out: The credit market still is not open for small firms or midsized companies with average credit ratings.6 In August, the Obama administrations pay czar, charged with preventing any excessive compensation for executives in companies that had received federal help, approved in principle an annual salary of $3 million and bonuses and stock options worth millions more for the incoming CEO of AIG, which had received a bailout of $182 billion.7 By the middle of the month, the Federal Reserve was on track to buy [by the end of the year] $1.25 trillion worth of securities issued by mortgage finance companies Fannie Mae and Freddie Mac.8 In October, the officially-reported unemployment rate in the United States stood at 9.8 percent; and it rose to 10.2 percent in early November. Even though eight months had passed since the passage of the stimulus bill, a news report said that more than half of the $787 billion recovery package [has] yet to be spent.9 The countrys small and medium-sized banks were failing rapidly: The bank failures [in 2009], 106 in all, are the most in any year since 181 collapsed in 1992.10 Our chronology ends here, if only because this article is written in November. It seems worthwhile, though, to add more detail about each of the three prongs in the U.S. response: the bailout bill, the stimulus package, and the Federal Reserves own moneypumping activity. The bailout bill. The bill was passed with great urgency in the fall of 2008, but as late as April 2009 the $700 billion was still $100 billion short of being even half-spent.11; and by mid-October more than half remained. By the following August, it was said that TARP consists of 12 programs that sent those hundreds of billions of dollars to banks, but it has also bailed out auto companies, auto suppliers, individuals delinquent on their mortgages, small businesses and AIG, the big insurance company.12 This sounds
3 4 5 6 7 8 9 10 11 12

Associated Press report by Jeannine Aversa, March 18, 2009. The Wichita Eagle, June 2, 2009. The Wichita Eagle, July 11, 2009. The Wichita Eagle, September 25, 2009. CNNMoney.com, August 17, 2009, report by David Goldman. The Wichita Eagle, August 13, 2009. The Wichita Eagle, October 19, 2009. The Wichita Eagle, October 24, 2009. The Wichita Eagle, April 1, 2009. The Wichita Eagle, August 9, 2009.

comprehensive, but a report in October spoke of one of the programs, the Home Affordable Modification Program, and said that by July, eight months into the program the Treasury had filled fewer than half the positions in a key modification office (emphasis added), and that by October only twelve percent of the nations three million defaultedupon mortgages had even begun the process of being reworked.13 All of this means that instead of giving the economy the promised jolt back into recovery, the bailout bill provided only a slow transfusion. If there was any conscious intention behind how it was carried out, it was apparently premised on the economys recovering on its own, rising eventually out of the ashes of widespread personal and institutional distress. (In practice, then, it unintentionally went part way toward implementing the position of that school of economic thought that argues that crises are best met by allowing the bottom to be reached quickly. But it is more likely that, in retrospect, neither the quick-collapse nor quick-intervention schools will be satisfied.) There have been oversight problems. A news report in April 2009 told of complaints by the head of a congressional oversight panel, shared at least in part by the Government Accountability Office (GAO), that without a clearer explanation of the TARP program it is not possible to exercise meaningful oversight.14 Four months later, in August, the McClatchy Newspapers reported that some members of Congress say that some oversight of bailout dollars has been so lacking that its essentially worthless. A special inspector general named for the TARP program rued that TARP has become a program in which taxpayers are not being told what most of the TARP recipients are doing with their money.15 That this is so is remarkable. The most elementary knowledge of human nature warns that to the worlds many predators a multi-billion dollar program is a wonderful target of opportunity a cash cow that can be bled without the slightest regard to the public welfare. Only the most intense scrutiny can hope to prevent it. It is a separate but related point to observe that the manner in which the bailout is being handled offers yet another example (along with, say, the legendary ineptitude that followed the Katrina hurricane disaster) of an incompetence that until recently seemed alien to American society. Beyond that, we are caused to speculate about what the failures tell us about the state of the American political and governmental system, and about what the economics profession and relevant academic departments are bringing to the table. The stimulus package. As economic stimulus, this $787 billion package was an odd creature. The first thing that strikes the eye is that the expenditures were to be spread over as much as ten years, although they were front-end-loaded with $185 billion the first year (which is when the spending was needed if the problems were truly pressing, as indeed they were) and $389 billion the next year. The second thing, every bit as much to the point, is that the measure, as one columnist put it, involved a long list of items that had nothing to do with economic recovery, including a system of carbon limits and health care reform.16 Instead of stimulus per se, the items included a medley of (1) spending to satisfy a long-preexisting wish-list favored by the American left; (2) pork-barrel spending to benefit local constituencies and the electoral interests of congressmen who represent them; (3) items pressed for by powerful lobbies; and (4) the initiation of what can best be
13 14 15 16

The Wichita Eagle, October 4, 2009. The Wichita Eagle, April 1, 2009. McClatchy Newspaper report by Chris Adams, The Wichita Eagle, August 9, 2009. Column by E. Thomas McClanahan of the Kansas City Star, in The Wichita Eagle, July 17, 2009.

seen as a national industrial policy along environmentalist lines. Here is at least a partial list as gleaned from news reports: . $225 million for programs that deal with violence against women, and $100 more to help victims of crime.17 . Ten thousand transportation projects. By September 2009, Vice President Joe Biden announced that 2,200 highway and 192 airport projects had been started.18 . Health care centers throughout the country that were, by that time, providing expanded care to 500,000 patients.19 . 200 new waste and water systems in rural America.20 . Work started or accelerated at 20 contaminated Superfund sites.21 . $1.2 billion in grants to help expand the nations electronic medical records system.22 . A Cash for Clunkers program, started at $3 billion, but later extended, to provide consumers discounts of up to $4,500 for trading in older vehicles. Although the idea was to cut down on fuel consumption (and hence carbon dioxide emissions) by getting rid of low-mileage trucks and vans, an analysis of new federal data by the Associated Press in November 2009 indicated that the single most common swap involved Ford F150 pickup owners who took advantage of the government rebate to trade their old trucks for new Ford F150s, resulting in an improvement of just 1 mile per gallon to 3 miles per gallon over the clunkers. The same thing was done by owners of thousands more large old Chevrolet and Dodge pickups.23 . $2.4 billion to build batteries and get the first batch of thousands of U.S.-made electric vehicles onto the roads.24 . The web site for the governor of Kansas on October 31, 2009, said that ARRA money was available for a wide variety of projects in the state:25 . Home weatherization. . Affordable housing for seniors. . Retention of criminal justice employees. . Providing employees to help against violence to women. . More funds for the food stamp program. . Tuition aid for college students. . Money to school districts, including for special education grants, education for the homeless, and school construction. The Federal Reserves money-pumping activity. According to Wessel, the Federal Reserves balance sheet, the sum of all the loans the Fed made and securities it held, increased from some $940 billion in September 2008 to more than $2.3 trillion by the time of the December meeting, just three months later. This included $675 billion to commercial banks, another $50 billion to securities dealers, more than $300 billion to
17 18 19 20 21 22 23 24 25

The Wichita Eagle, September 28, 2009. The Wichita Eagle, September 4, 2009. Ibid. Ibid. Ibid. The Wichita Eagle, August 20, 2009. The Wichita Eagle, November 5, 2009. The Wichita Eagle, August 6, 2009. Kansas Governors web site, October 31, 2009.

companies that issued commercial paper, $540 billion to foreign central banks plus the loans to Bear Stearns and AIG. He says it wouldnt stop there, and mentions up to $500 billion for buying mortgage-backed securities and lending perhaps an additional $100 billion to now government-controlled Fannie Mae and Freddie Mac. In our chronology, we saw that in March 2009 a new $1.2 trillion effort was launched, with the Fed contemplating an additional $1 trillion immediately thereafter. Although there is a question in this reviewers mind about whether some of the figures duplicate others (which could easily occur in the welter of billions and even trillions mentioned at different points in the narrative), it is clear that the money-creating powers of the Federal Reserve added a major third prong, going well beyond the $700 billion authorized by the bailout bill and the $787 billion stimulus package. Questions About the Responses to the Crisis We wont attempt to argue in favor of any particular approach that should have been taken in responding to the crisis, but a number of questions come to mind that should be considered in future critiques. 1. Has the response fit the situation? If the trio of financial leaders Bernanke, Paulson and Geithner had fully understood the new global financial structure that had come into being, would they have adopted the strategy they did in the fall of 2008? That is to say, would they have thought that the main task was to rescue, in turn, a few large financial firms, hoping that each rescue would stem the tide, as though each institutions distress were a thing unto itself and the main task was to prevent a panic psychology? Wessel says that they didnt offer a clear explanation of what they were doing and that they made a series of ad hoc interventions. These interventions were directed toward saving large institutions that were too big to fail. No doubt, a gigantic institutions size can make its failure a systemic problem; but little mention is made of the rather obvious fact that simultaneous distress on the part of many medium-sized and smaller firms, and even a large number of individuals, can, by aggregation, rise to the level of a systemic failure. Too large to fail may accordingly be a misleadingly reductionist concept in a setting where an entire economy is polluted. Consider the immensity of the real problem: John Lippert on Bloomberg.com tells how derivatives spawned a $683 trillion market thats proved to be a root of todays financial system breakdown (emphasis added).26 Wessel comments on the huge sums of money sloshing around the world economy. Although the home-mortgage market was only a small percentage of that, the mixture of bad debts into securities that no one could understand tainted the entire multi-trillion dollar cauldron. The rot, so to speak, permeated much more than a few financial behemoths. Saving them would not prevent the general crisis from soon becoming apparent. For understanding how widespread the systemic failure was, it would be helpful to know much more than we do (which is virtually nothing) about who all was hurt by the collapse. How many investors lost money, how much did they lose individually and collectively, where were they located, and what effect did the loss of their investments have on their own pursuits and on the pursuits of those with whom they dealt? What were the specifics about what businesses were damaged, and to what effect? What was the impact on workers and careers? What was the effect on individuals and families of lost
26

John Lippert on Bloomberg.com, January 3, 2009.

shareholder value (in firms where the stockholders were wiped out in a liquidation and, beyond that, in the precipitous decline of the stock market)? Such questions can go on indefinitely, inviting an impossible explication of the countless reverberations. It isnt likely that any more than an anecdotal recounting of some of them will ever be attempted. Their relevance to the needed economic analysis is that the collapse found a home in much more than just the giant financial institutions; it was deeply rooted in the economy at large. Wessel comments on the vaporizing (of) some $8 trillion in wealth (emphasis added). What, indeed, is the appropriate response to something so voluminous and widespread? (The fact that there is almost certainly no satisfactory answer to this underscores how essential it is to avoid such all-permeating rot from ever coming to exist again.) In this context, attention should long be given, in any historical critique of this period, to just how it is that the stimulus package, implemented (as we have seen) with dubious competence and spread over as much as ten years, could be said to address appropriately the needs of that larger economy. The Economist has pointed out that the United States has put in place a hefty fiscal stimulus, but relatively little of that money has gone into labour-market policies schemes to slow firing, boost hiring or support the jobless. Although America has extended its (meagre) unemployment benefits, and is likely to do so again, Congresss main response to persistently high joblessness has been a host of ill-targeted new stimulus proposals.27 In the decades that have followed the New Deal of the 1930s, there has been continuing discussion of whether the New Deal measures were efficacious. That same sort of critique will no doubt be called for here. 2. Why were some bailout beneficiaries more important to salvage than others? It would have been helpful if Wessel had attempted some explanation of the trios thinking in favoring the protection of some categories of people and the allowance of loss by others. For reasons that arent explained, there was great solicitude for bondholders, and not for stockholders, when a company went into liquidation or was being restructured. (An example is the government take-over of General Motors, where the unsecured bondholders were given a 10% ownership share and the stockholders none.) The rationale that stockholders buy their shares knowing that they are the ones at risk doesnt make much sense when we consider that the publics mutual fund holdings and 401k retirement plans are largely invested in stocks. Those millions of people dont know they are the systems sacrificial lambs. The outspoken economist Paul Craig Roberts, who was Assistant Secretary of the Treasury during President Reagans first term, sees it in understandably harsh terms: The big money men cannot conceive of anyones suffering except the megarich. If billions are not at stake, what is the problem? How can a family losing its house bring down the economy?28 3. What intellectual failures contributed to the crisis? It has become cliched, as indeed it should through needful repetition, to ask how the minds of so many brilliant people who had a stake in the health of world finance business and financial leaders, the accounting and economic professions, regulators, central bankers, large investors, congressional oversight committees, and the like could have allowed the on-the-edge
27 28

The Economist, November 7, 2009, p. 16. Paul Craig Roberts, column Obama President of Special Interests, February 16, 2009, available at http://ww.vdare.com/roberts

risk-taking and opaque instruments to become so dominant. Was the intelligence skewed in some way that prevented seeing dangers that were apparent? (We know that some computer models were built on a tunnel-vision that accounts for some, but surely not all, of this.) An important subset of this larger issue is why no effective effort was attempted, on a worldwide basis, to address the problem that global finance had become so enormous and complex that central banks had lost control. Wessel tells us that Federal Reserve chairman Alan Greenspan (Bernankes predecessor) understood, at a time prior to the panic, that the Fed was impotent: global flows of money were so great they overwhelmed the Feds ability to make credit scarce or costlier by moving up short-term rates. It cant be surprising that so many books (such as we have reviewed in this journal) have said that the world financial system was, for more than one reason, at all times walking on the edge of a precipice. 4. What moral failures? These questions have another a moral and cultural dimension, too, that should not be overlooked. It isnt just a matter of aborted intelligence. It is also a question of how venality, short-term profit-seeking heedless of consequences, and the silencing of those who objected, came to be the rule, not the exception. How, say, did the accounting and banking professions see fit to abandon long-held principles? What ethical collapse moved the credit rating agencies to abandon their all-important role of trust, indulging in serious conflicts of interest and telling customers just what they wanted to hear? It would not seem too much to suggest that, as one possibility, the intellectual and moral failures have their roots in the characteristics of the generation that now occupies the commanding heights of American society and its economy. The generation of the 1960s and 1970s is at an age that places it in those positions. It is a generation that has in many ways been technically brilliant, while at the same time it has aptly been called the me generation. A market system counts on enlightened self-interest as the prime motivator, and its theoreticians going back to Adam Smith ascribe all sorts of good results to it, believing it (rightly in this reviewers opinion) far superior to any system that relies upon idealism as the principal mover of men. But it would seem that to a generation of narcissists the enlightened qualifier had little meaning. The result is that the capitalism we have seen in recent years is very different in kind from the sort of free-market economy those thinkers have endorsed. 5. Did politically correct blinders and racial social legislation contribute substantially to the housing crisis? In all of the many thousands of words that are written in the United States about the subprime mortgage mess, virtually nothing is said about the government compulsion that has long existed to force lenders to extend credit to minority borrowers, who have for many years been said to be underserved. (There has, of course, been some argument pro and con about it, as we will see but it is assiduously left out of the great run of discourse in the popular media.) For many years, red-lining (an institutions declining to make loans or grant insurance in a certain section of a city, such as in the burnt-out area north of downtown in St. Louis or similar areas in Detroit) has been prohibited. The underlying premise of the anti-discrimination social legislation in the United States such as the Fair Housing Act and the Community Reinvestment Act, starting in the 1960s and continuing to this day, has been that substantial and systematic anti-black bigotry has been engaged in by a good many

financial institutions, which are thought to have passed up granting otherwise-profitable credit because of the race of the applicant. The continued existence of this legislation means that the premise is embraced even fifty years after the onset of the civil rights revolution. Early legislative acts on the subject were the Fair Housing Act of 1968, the Equal Credit Opportunity Act of 1974 and the Home Mortgage Disclosure Act of 1975. These were supplemented by the Community Reinvestment Act of 1977 (CRA), which has been amended on several occasions since its first enactment. We are told by the Wikipedia entry on the subject that economist Stan Liebowitz wrote that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards and that Congressman Ron Paul charged the CRA with forcing banks to lend to people who normally would be rejected as bad credit risks. The entry tells us this is denied by the Federal Reserve and the Federal Deposit Insurance Corporation [which hold] that empirical research has not validated any relationship between the CRA and the 2008 financial crisis. We do know, of course, that in the lead-up to the housing crisis lending standards were loosened almost to the point of disappearance. The denial of any relationship of the immense socio-political-legal-racial pressure to the evaporation of standards doesnt seem plausible. Under the pressure of ideology and special-interest politics, systemic consequences were ignored. It leads us to ask when, if ever, it will become possible to address social and racial issues without blinders on. Further, when, if ever, will the inhibitions on speech in the United States be lifted to allow a free and honest discussion of such a matter? This Journal is running a series of reviews of books on the financial crisis and its causes. Those books discuss a number of factors that we have not included in this article, such things as the role played by the repeal of the Glass-Steagall Act that separated traditional banking from brokerage activities, and such as the thinking that motivated the Federal Reserve under Alan Greenspan to create a series of monetary bubbles that were bound to explode. No one book covers all of these factors, but hopefully the reviews, taken as a whole, will give an adequate picture. As one of the first books to focus on the American response to the Panic, Wessells chronology of that response All of this has great intellectual and practical interest. . We look forward to the revelations and critiques that are still to come.