‘after the music stopped,’ by alan s. blinder - nytimes
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3/2/2014 ‘After the Music Stopped,’ by Alan S. Blinder - NYTimes.com
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Princeton Univ ersity
Alan S. Blinder
AFTER THE MUSICSTOPPED
The Financial Crisis, theResponse, and the Work
Ahead
By Alan S. Blinder
Illustrated. 47 6 pages. The
Penguin Press. $29.95.
Related
Times Topic: United States
Economy
BOOKS OF THE TIMES
When Dancing Ended, and Disaster Set In‘After the Music Stopped,’ by Alan S. Blinder
By MICHIKO KAKUTANI
Published: February 7, 2013
The title of Alan S. Blinder’s highly readable new book on the
financial crisis (yes, a readable book about economics) refers to an
infamous remark made in July 2007 by Charles O. Prince III, then
the chief executive of Citigroup. “When the music stops, in terms of
liquidity,” he said, “things will be complicated. But as long as the
music is playing, you’ve got to get up and dance. We’re still dancing.”
Of course, the music did come to an
abrupt stop soon. For the United
States and the world, the
consequences of the fiscal meltdown
of 2008 were calamitous, pushing
America into the worst economic hole
since the Great Depression and
leaving us — years later — still coping
with lingering unemployment, sluggish growth and huge
deficit worries.
Mr. Blinder, a professor of economics and public affairs at
Princeton and a former vice chairman of the Federal
Reserve Board, reminds us that the disaster was years in
the making. Starting in the late 1990s and continuing
through 2007, he writes, Americans had “built a fragile
house of financial cards” that was just waiting to be
toppled: “The intricate but precarious construction was
based on asset-price bubbles, exaggerated by irresponsible
leverage, encouraged by crazy compensation schemes and
excessive complexity, and aided and abetted by
embarrassingly bad underwriting standards, dismal
performances by the statistical rating agencies and lax
financial regulation.”
This sorry tale of fiscal irresponsibility and chaos — and the
ways the Bush and Obama administrations grappled with
the unspooling crises — has been told many times before. The economists Nouriel Roubini
(“Crisis Economics”) and Joseph E. Stiglitz (“Freefall”) have both written lively, accessible
books addressing the causes and consequences of the cataclysm; David Wessel of The Wall
Street Journal provided an engrossing account of how the Federal Reserve chairman, Ben
S. Bernanke, and President George W. Bush’s Treasury secretary, Henry M. Paulson Jr.,
desperately tried to shore up the United States economy as one fiscal domino after another
was toppling (“In Fed We Trust”); and an array of journalists including Michael Hirsh,
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3/2/2014 ‘After the Music Stopped,’ by Alan S. Blinder - NYTimes.com
http://www.nytimes.com/2013/02/08/books/after-the-music-stopped-by-alan-s-blinder.html 2/3
Noam Scheiber, Ron Suskind and Bob Woodward have written books that look at
President Obama’s economic team and its handling of the recovery.
Mr. Blinder draws on the work of many of these reporters in his account. But if large
portions of “After the Music Stopped” feel familiar, the book nonetheless benefits from its
wide-angle perspective, as well as from its vantage point in time, now that it’s possible to
assess the fallout of decisions that were being made on the run by White House and
Treasury officials under extraordinary pressures. It also benefits from Mr. Blinder’s
cleareyed prose and nimble gifts as an explainer — gifts that sometimes approach those of
Bill Clinton, when it comes to making complicated economic issues and policies
understandable to the lay reader.
Direct and concise, Mr. Blinder tells it as he sees it. He calls the former Federal Reserve
chairman, Alan Greenspan, and the Clinton-era Treasury secretaries, Robert E. Rubin and
Lawrence H. Summers, to account for their antiregulatory stances, which laid the
groundwork for the market excesses and snowballing fiscal disasters that would explode in
2008.
He identifies Fannie Mae and Freddie Mac — with their low-income and subprime
mortgage portfolios — as being only “supporting actors” in the debacle. And he calls the
collapse of Lehman Brothers on Sept. 15, 2008, the “watershed event of the entire
financial crisis” and the government’s decision “to allow it to fail” as “the watershed
decision.”
Not everyone will agree with such assessments. For instance, Mr. Blinder characterizes the
reforms instituted thus far in response to the 2008 crash as “substantial and thorough,” an
evaluation that will perplex skeptics across the political spectrum, from those who feel that
not enough has been done about too-big-to-fail institutions and dangerous derivatives to
those, on the other side, who argue that the overly complex Dodd-Frank legislation will
simply suffocate business in red tape without providing any meaningful safeguards
against the sort of chaos that occurred.
Mr. Blinder, however, always makes it clear when he is offering an opinion, and he
usually provides a logical dissection of his reasoning, carefully pointing out where he
thinks legislators punted: “Dodd-Frank made no attempt to fix the nation’s broken
mortgage finance system,” he explains. “Nor did it seek a way out of the foreclosure mess.”
He adds that it also failed to specify how ratings agencies should be paid. (In what has
been a major conflict of interest, they are paid by the issuers of the very securities they
evaluate.)
Over all, however, Mr. Blinder contends that “the grab bag” of policy activism done during
the tenures of George W. Bush and Barack Obama — including the Federal Reserve’s
creation of huge amounts of liquidity, and Congress’s expansion of the social safety net
and passage of large-scale fiscal stimulus programs — actually worked: “not perfectly, of
course. But for the most part, the financial system healed faster than most observers
expected.”
Why, then, has there been such public anger, and such a “severe antigovernment
backlash” by Tea Party protesters, by conservative Republicans, and by financial industry
titans who have loudly complained about excessive regulation?
What we’ve got here, Mr. Blinder asserts, is a failure to communicate — specifically a
failure, in his opinion, on the part of the Obama administration to educate the American
public about how we got into the fiscal mess in the first place and how the president’s
policies were going to get us out.
He suggests that the president’s reluctance to focus “like a laser beam on the economy” —
and his decision instead to take on health care reform too — resulted in “a scattershot
approach” to policy that left people confused about his priorities and unconvinced that
“things would have been much worse without the stimulus” and other rescue plans. Mr.
Blinder contends that the public still believes what he calls “the false notion that the
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3/2/2014 ‘After the Music Stopped,’ by Alan S. Blinder - NYTimes.com
http://www.nytimes.com/2013/02/08/books/after-the-music-stopped-by-alan-s-blinder.html 3/3
A version of this review appears in print on February 8, 2013, on page C30 of the New York edition w ith the headline: When
Dancing Ended, and Disaster Set In.
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government gave away money to the banks. (It actually made loans and equity
investments).”
“It is a measure of the Obama administration’s ineptitude in communication,” Mr. Blinder
notes, “that the public came to see Geithner, Summers, & Company as tools of Wall Street
while at the same time the bankers who were saved from oblivion came to hate the
administration for vilifying and scapegoating them. Acquiring one of those two images
was excusable, maybe even unavoidable. Acquiring both at the same time amounted to
gross political negligence.”
What of “the specter of trillion-dollar-plus budget deficits” and the partisan dysfunction in
today’s Congress? Mr. Blinder says: “America’s budget mess is starting to look Kafkaesque
because the outline of a solution is so clear: We need modest fiscal stimulus today coupled
with massive deficit reduction for the future. Some of that will take the form of higher
taxes — sorry, Republicans. Most of it will be lower spending — sorry, Democrats.”
“If you view the world through sufficiently rose-colored glasses,” he goes on, “you can
perhaps see the two parties inching in that direction. But ‘inching’ isn’t good enough.
There is plenty of room for partisan bickering over the details, but we need to adopt the
Nike solution — Just do it! — as soon as possible.”
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