After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

Abstract

After the Music Stopped: The Financial Crisis, the Response, and the Work AheadAlan S. BlinderThe Penguin Press, 2013Books about the Great Recession have come along in a natural progression. A first wave consisted of those written during the early months of the crisis, and gave much detail about the debacle and its causes. The second wave came after passage of the bailout bill (TARP1) in late 2008 and the "stimulus package" (ARRA2) in early 2009. The authors of those books were able to tell much about the immediate responses to the crisis, though they necessarily felt the need to precede this by retelling what the first books had covered. Now, as the years pass and the monetary and fiscal responses to the calamity give way to longer-term efforts at "reform," a third wave of books will appear dealing with those later developments. But because each author sees his own contribution as not simply part of the flow, but as a "stand alone" explication that needs to be at least somewhat complete in itself, the books in this third wave will again go back over much of the ground covered by those in the first two and will thus devote only part of their attention to the reform phase.Alan Blinder's After the Music Stopped follows this pattern. It recapitulates the events of the crisis and its aftermath, but then goes into the later efforts at reform. A reader will find it significant that it is one of the early books in the third wave, and that for that reason it isn't able to spell out the reforms as accomplished fact. This is because most of the reforms are still on the drawing boards. The writing was finished in late 2012, and as of that time Blinder found it necessary to report that the Dodd-Frank Act, the U.S. Congress's massive financial reform statute in 2010,3 was "virtually never more than a skeleton" because "the sketchy... content... must be translated into concrete, detailed regulations by the agencies involved." Nonetheless, what the author is able to do is valuable. He provides nuanced discussion of a good many reform proposals, and provides excellent quick-reference tables which identify several issues, "key aspects of the debate" about each issue, what the U.S. Treasury Department's reform proposal contained, and what was (and was not) included in the Act itself. As the third wave continues, there will no doubt be a vast future literature analyzing the financial regulations that emerge from the agencies that Dodd-Frank put in place.In these pages, we have reviewed a number of books about the recent financial crisis written by eminent economists of various persuasions.4 Alan S. Blinder fits in well with that company. He served on President William Clinton's Council of Economic Advisers, and from 1994 to 1996 was the vice chairman of the U.S. Federal Reserve's Board of Governors. In addition to writing a monthly column for the Wall Street Journal, appearing in a variety of television discussions, and serving as vice chairman of a financial services firm, Blinder is the "Gordon S. Rentschler Memorial Professor of Economics and Public Affairs" at Princeton University. As a number of things he says reveal, his political persuasion aligns him strongly with the Obama administration and the Democratic Party, although this doesn't prevent him from voicing independent, critical views when he thinks they are called for.A reader who has not studied one or more books about the crisis will find After the Music Stopped an instructive place to start. Blinder is evidently quite a good teacher. This shows in his especially good explanation of several things, including, say, the SIVs (structured investment vehicles) which banks used as auxiliaries to allow them to build up much greater leverage (borrowing) than ordinary banking would allow. Other items of particular benefit include his account of the European debt crisis, and his explanation of Greece's long financial plight. The book is not a textbook per se, and certainly avoids giving any dry-as-dust impression, but is clearly meant to be instructive. …