Too Big to Fail [49]
Kashkari had always wanted to work in government, and though he’d met Paulson only once previously, he left him a congratulatory voice-mail when Paulson was named Treasury secretary. To his surprise, Paulson responded the next day: “Thanks. I’d love for you to join me at Treasury.”
Kashkari immediately booked a flight to Washington, during which he carefully rehearsed the pitch he would make to Paulson. They met at the Old Executive Office Building, where Paulson was camped out until the Senate could confirm him, and Kashkari had scarcely begun his presentation when he noticed a distracted, slightly irritated look come over Paulson’s face. Kashkari stopped in midsentence.
“Look, here is what I’m trying to do here,” Paulson told him. “I want to put together a small team that will be working on policy issues, all kinds of issues, really, just doing whatever it takes to get things done. How does that sound?”
An astonished Kashkari realized, He’s offering me a job!
As the two men shook hands on the deal, Paulson suddenly remembered an important detail and asked, “Oh, yeah, there’s just one other thing. Are you a Republican?” As luck would have it, he was. Paulson saw him out and directed him to the White House Personnel Office a few blocks away. Kashkari was soon on the team, and now he was about to lead the biggest sales pitch of his career—to the single most influential person in the entire world’s economy.
Four words had dogged Ben Bernanke from the moment he assumed the job of chairman of the Federal Reserve on February 10, 2006: “Hard Act to Follow.” It was, perhaps, an inevitable epithet for the man whom the renowned Washington Post investigative reporter Bob Woodward had also dubbed “The Maestro”—Alan Greenspan, who was to fiscal policy what Warren Buffett was to investing. Greenspan had overseen the Federal Reserve during a period of unprecedented prosperity, a spectacular bull market that had begun during the Reagan administration and had run for over twenty years. Not that anyone outside the economics profession had a clue what Greenspan was doing or even saying most of the time. His obfuscation in public pronouncements was legendary, which only added to his mystique as a great intellect.
Bernanke, by contrast, had been a college professor for most of his career, and at the time of his appointment to replace the then-eighty-year-old Greenspan, his area of specialization—the Great Depression and what the Federal Reserve had done wrong in the 1920s and 1930s—seemed quaint. Trying to identify the causes of the Great Depression may be the Holy Grail of macroeconomics, but to the larger public, it seemed to have little practical application in a key government position. Any economic crisis of that magnitude seemed safely in the past.
By the summer of 2007, however, America’s second Gilded Age had come shockingly to an end, and Greenspan’s reputation lay in tatters. His faith that the market was self-correcting suddenly seemed fatally shortsighted; his cryptic remarks were judged in hindsight as the confused ramblings of a misguided ideologue.
As a scholar of the Depression, Bernanke was cut from a different cloth, though he shared Greenspan’s belief in the free market. In his analysis of the crisis, Bernanke advanced the views of the economists Milton Friedman and Anna J. Schwartz, whose A Monetary History of the United States, 1867–1960 (first published in 1963) had argued that the Federal Reserve had caused the Great Depression by not immediately flushing the system with cheap cash to stimulate the economy. And subsequent efforts proved too little, too late. Under Herbert Hoover, the Fed had done exactly the opposite: tightening the money supply and choking off the economy.
Bernanke’s entrenched views led many observers to be optimistic that he would be an independent Fed