The Benefits of Playing Well

I appreciate the opportunity to participate in this panel to learn lessons from the ongoing financial crisis. By my count, the participants who came before amassed 15 lessons, which is a little disquieting. That so few people can come up with so many lessons immediately leads to the conclusion that matters are complicated. Despite differences among panelists, an agreed-upon lesson at this banking conference is that bankers are not as bad as some people might think.

For me, the good news for our session on learning lessons is that failure teaches as much, if not more, than success. And events over the last year and a half have given ample opportunity to better ourselves. In that regard, the situation reminded me of a reflection of David Halberstram in the introduction of the 20th anniversary edition of the Best and Brightest. Halberstram wrote that "The failure of a major policy is . . ., if nothing else, a marvelous lever with which to open a debate." We are now at the stage where the debate is about to be opened.

The ellipsis in the quote from The Best and the Brightest referred to the United States' performance in Vietnam. In my remarks, I will talk about a failure of equivalent scale and scope in crisis management and regulation of financial institutions. This assessment is bipartisan. In 2008, policy-making was inconsistent, adding uncertainty in an uncertain environment. This magnified the reaction in financial markets to the initiating economic shock that we built too many houses. Inefficient policies wasted government resources, and the reputation of some key institutions was damaged.

Click here to read the full speech as an Adobe Acrobat PDF.

Vincent Reinhart is a resident scholar at AEI.

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About the Author

 

Vincent R.
Reinhart
  • Vincent Reinhart, a former director of the Federal Reserve Board's Division of Monetary Affairs, joined AEI in 2008 after working on domestic and international aspects of U.S. monetary policy at the Fed for more than two decades. He held a number of senior positions in the Divisions of Monetary Affairs and International Finance and served for the last six years of his Federal Reserve career as secretary and economist of the Federal Open Market Committee. Mr. Reinhart worked on topics as varied as economic bubbles and the conduct of monetary policy, auctions of U.S. Treasury securities, alternative strategies for monetary policy, and the efficient communication of monetary policy decisions. At AEI, he has continued his work on all of the above in addition to research on key economic variables before and after adverse global and country-specific shocks, policy mistakes leading to the 2007-09 financial meltdown, and the implementation and impact of quantitative easing.
  • Email: vincent.reinhart@aei.org

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