By Derek Parker for MIS Financial Review

Book of the month:

Senseless Panic: How Washington Failed America

As the former head of the Federal Deposit Insurance Corporation, William Isaac played a critical role in steering the US through the banking crisis of the 1980s. He can rightly claim to know something about financial catastrophes. He believes that the meltdown of 2008 began as an issue of liquidity problems within the banking system but was turned into a global crisis by poor leadership, inconsistent policy, and overheated language. By comparison, says Isaac, dealing with the 1980s crisis took place according to a clear plan, with the FDIC organising mergers between financial institutions or buying assets where needed. There was consistency and transparency.

He lays much of the blame for the GFC with the US Treasury, which was dominated by former investment bankers. Where there was a need for policymakers to project a sense of control, the Treasury Secretary instead talked about the prospect of financial armageddon, which dealt a body blow to public confidence.

Isaac is not hopeful that the current raft of reforms will do anything useful. The creation of a Systemic Risk Council, for example, was a good idea that ran afoul of Washington politics, ending up subservient to the entities it was supposed to oversee. Isaac fails to give much regard to the derivatives products and cross-institution holdings that acted to spread the infection with unprecedented speed. Nevertheless, he makes plenty of convincing points, now that the air is starting to clear. Those who fail to remember the mistakes of the past, he says, are most likely to repeat them.

Original Article Located Here.