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Crisis Turned Federal Reserve Into Fourth Branch of Government, Author Says

"In Fed We Trust" author David Wessel discusses how the central bank reacted to the financial crisis and its changing role in setting U.S. and global financial policy.

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    And next, the power of the Federal Reserve at the height of the financial crisis. Once again to Jeffrey Brown. A note: This conversation was recorded before today's developments.


    Even amid some recent positive economic signs, the fallout from the financial meltdown continues. And the lasting impact on individuals, communities and institutions is still being assessed.

    A new book, "In Fed We Trust: Ben Bernanke's War on the Great Panic," goes behind the scenes to look at what happened and why. Author David Wessel has helped us understand events along the way this past year. He's economics editor for the Wall Street Journal and joins me now.

    And welcome back.

  • DAVID WESSEL, Wall Street Journal:

    Thank you. Good to be here.


    You have covered this every day, the daily news that we're both part of. When you step back from all those little pieces and take a look at the big picture, what struck you most?


    I think two things strike me. One is just how enormous the threat was to the financial system and the whole economy.

    You know, when you write about this one company, one day of the market at a time, it's hard to realize just how big a threat it was. And when I talked to Bernanke a few weeks after the Lehman Brothers thing, and he says to me, "We came very close to Depression 2.0," it sort of took my breath away.

    And the second thing is that…


    That will take your breath away, when…


    Yes. Yes. And it wasn't clear then we'd avoided it. The other thing was that these people seem larger than life on TV and in the papers, but they're — you know, they're smart people, but they're ordinary people, and the number of decisions they had to make under fire, with no owner's manual, with very little precedent to go on, I mean, it was exhausting. And it's kind of amazing how much we depended on a very small group of people to basically save us from that economic calamity.


    So one of the key moments that you write about, of course, is Lehman Brothers…




    … the decision-making there about what to do about it, and that's a perfect moment to talk about some of these things you just talked about. You have key players. You have Ben Bernanke, Henry Paulson, Tim Geithner. Personalities come into play, a sense of not certainty about exactly what to do.