Fed Up: The Impunity of Central Banks

Fed Up: The Impunity of Central Banks

The bailouts averted another Great Depression, but they began a crisis of political and institutional legitimacy that shows no signs of abating. Few issues highlight the dominance of economic power over participatory democracy better than central bank independence.

Paul Volcker (Scott J. Ferrell/Congressional Quarterly/Getty Images)

Last Resort: The Financial Crisis and the Future of Bailouts
by Eric A. Posner
University of Chicago Press, 2018, 272 pp.

Financial Citizenship: Experts, Publics, and the Politics of Central Banking
by Annelise Riles
Cornell University Press, 2018, 120 pp.

Crashed: How a Decade of Financial Crisis Changed the World
by Adam Tooze
Viking, 2018, 720 pp.

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State
by Paul Tucker
Princeton University Press, 2018, 656 pp.


September 29, 2008, was one of the strangest days in the recent history of capitalism. The investment bank Lehman Brothers had failed two weeks earlier in the largest bankruptcy in U.S. history, and Washington Mutual had failed after a bank run on the 26th. Insurance giant AIG was bailed out on the 30th. Global credit markets were paralyzed, stock markets were in vertiginous collapse, and the entire international financial system was at risk. Treasury Secretary Henry M. Paulson Jr. approached Congress with the Emergency Economic Stabilization Act and the $700 billion Troubled Asset Relief Program (TARP), which together granted the government sweeping and unspecified emergency powers. On September 29, a little over one month before an election, Congress voted not to save the global financial system and rejected Paulson’s proposal by a vote of 228–205. The Dow Jones Industrial Average plummeted, and on October 3, Congress voted to pass a revised and extended version of the bailout, now loaded with petty individual handouts: some funding “for wool research,” a tax break for manufacturers of wooden arrows, subsidies for Virgin Islands rum production. Such was the price Congress demanded for rescuing the global economy.

The $700 billion bailout remains an unresolved trauma in American political consciousness. But as Adam Tooze has shown in his monumental book Crashed, that $700 billion was not the real bailout. TARP was wrapped up in December 2014 with the last sale of the last troubled asset the government had bought, and in the end the Treasury turned a profit of $15.3 billion. Those government purchases of toxic assets were dwarfed by the actions of central banks: in three rounds of quantitative easing from 2009 to 2014, the Federal Reserve pumped roughly $4.4 trillion into financial markets, aided by another $2.8 trillion from the European Central Bank (ECB) and yet more from the Bank of England and the Bank of Japan. On top of these operations, between 2007 and 2011 the Federal Reserve extended currency swap lines—emergency access to dollars—to fourteen central banks, totaling some $10 trillion in credit in varying lengths of maturity. These gargantuan movem...

Duggan | University of California Press Gardels