Big Think is conducting a series of video interviews with economists, market participants, journalists, policymakers and others on the financial crisis to try to answer the pressing question of “what went wrong.” This is an excellent idea. As former Treasury Secretary Nicholas Brady said last week “you can’t fix what you can’t explain.” The Financial Crisis Inquiry Commission should take note.
The interview with David Wessel of the Wall Street Journal was the first in the series. Among many good questions put to David, one of the most interesting was “Did Bernanke’s mantra of ‘whatever it takes’ lead us astray?” In David’s 575-word answer, he offers 5 positive words that it “got us through this crisis,” but gives no explanation for that and instead goes on for the remaining 570 words talking about the problems the approach has caused and is causing, including that “it can justify almost anything.” Among other problems he mentions the Bernanke-Paulson-Geithner “mistake” of “wasting the time after Bear Stearns” and “not coming up with a more articulated game plan for what they would do if they had to cope with a collapse with another financial institution.” In effect what you see in the video is a cogent argument that the approach may have seriously worsened the crisis even if it eventually got us through it. So it seems like the answer to the question is: yes, it led us astray. And since the problem has not been addressed–as David points out in the last few sentences—it is likely to continue to lead us astray.