Senseless Panic
Book

Senseless Panic

How Washington Failed America

William M. Isaac and Philip C. Meyer
Wiley, 2010

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Editorial Rating

7

Qualities

  • Well Structured
  • Overview
  • Background

Recommendation

In his first-person account comparing the 1980s bank crisis to the 2008 financial panic, William M. Isaac excoriates government officials for needlessly stoking fear and costing taxpayers billions of dollars through the Troubled Asset Relief Program (TARP). Isaac, the former head of the Federal Deposit Insurance Corporation (FDIC), navigated that agency through the 1980s bank and thrift debacle, and he voices sharp opinions on the TARP’s shortcomings, politicization and mismanagement. His presentation details how the government (read the FDIC) could have prevented this entire systemic mess had it responded as it had in the ’80s under his lead. Unfortunately, most of Isaac’s remedies are bank-centric and thus gloss over the roles nonbank financial institutions played in the 2008 crisis. He also doesn’t acknowledge any of the experts who say TARP ultimately succeeded in many ways. Nonetheless, getAbstract suggests this book for its well-informed treatment of the 2008 crisis in the context of recent bank history.

Summary

Breaking the Banks

William M. Isaac chaired the US Federal Deposit Insurance Corporation (FDIC) during the economically turbulent 1980s. In the 1980-1982 recession, US unemployment reached 11% and interest rates hit 21.5%. Within a decade, about 3,000 banks and thrifts went out of business; nine of the 10 largest banks in Texas collapsed. The failure rate was so great that the US government considered nationalizing banks to save the financial system. Defunct financial institutions drained the FDIC’s coffers by more than $100 billion.

Those who compare the 2008 financial emergency to the 1980s banking crisis often fail to note that the economy before the 2008 recession was stronger than it had been in the ’80s. Yet the 2008 panic sent shock waves around the globe and threatened the stability of the world banking system, while the aftereffects of the ’80s crisis were much more muted. Had government leaders better understood what really happened in the ’80s and instituted the proper remedies, they might have averted the 2008 panic.

Lehman Brothers’ collapse on Sept. 15, 2008, reverberated throughout the world. Starting on Sept. 18, Treasury Secretary Henry Paulson...

About the Authors

Former FDIC chairman William M. Isaac is currently chairman of LECG Global Finances Services. Philip C. Meyer is a government affairs consultant.

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