The Alchemists: Three Central Bankers and a World on Fire

by Neil Irwin

  “an impossible position”: Ibid., 143.

  “What were they doing screwing around in the United States?”: Craig Whitlock and Ed Cody, “Europe Beginning to Realize Its Lenders Share the Blame,” Washington Post, October 2, 2008, A12.

  “To put it mildly”: Marcus Walker, Joellen Perry, and David Gauthier-Villars, “EU Is Divided on Crisis Measures,” Wall Street Journal, October 2, 2008.

  “If we cannot cobble together a European solution”: Carlo Bastasin, Saving Europe: How National Politics Nearly Destroyed the Euro (Washington, DC: Brookings Institution Press, 2012), 15.

  people were withdrawing 500-euro notes: Ibid., 55.

  “If two people always agree”: Paul Wiseman, “Bernanke Nonplussed by Dissenters,” Associated Press, September 19, 2011.

  “I felt after going for a walk down the hall”: David Wessel, In Fed We Trust: Ben Bernanke’s War on the Great Panic (New York: Crown Business, 2009), 258.

  CHAPTER 12: THE BATTLE FOR THE FED

  A Gallup poll in the summer of 2009: Michael Mandel, “Behind Bernanke’s Charm Offensive,” BusinessWeek, July 30, 2009.

  “You never want a serious crisis to go to waste”: Gerald Seib, “In Crisis, Opportunity for Obama,” Wall Street Journal, November 21, 2008.

  “giving his son a bigger, faster car”: Neil Irwin and Binyamin Appelbam, “Lawmakers Balk as Administration Tries to Redefine Central Bank’s Role,” Washington Post, June 19, 2009, A1.

  “absolutely bizarre”: Semiannual Monetary Policy Report to the Congress, Before the House Financial Services Committee, 111th Cong., February 24, 2010, statement of Ben Bernanke, Chairman of the Federal Reserve.

  “Mr. Chairman, I understand your objectives here”: Confirmation Hearing, Before the Senate Banking Committee, 111th Cong., December 3, 2009, statement of Ben Bernanke, Chairman of the Federal Reserve.

  “If the Fed were running for reelection”: Brady Dennis and David Cho, “Fed Losing Support on Bank Oversight,” Washington Post, November 7, 2009, A18.

  He’d won the confidence of Wall Street: Phil Izzo, “Economists Call for Bernanke to Stay, Say Recession Is Over,” Wall Street Journal, August 11, 2009.

  “I believe that Ben Bernanke deserves substantial credit”: Executive Session to Vote on Nominees, Senate Banking Comm., 111th Cong., December 17, 2009.

  “Massachusetts was kind of a wake-up call”: Neil Irwin and Lori Montgomery, “Populist Backlash Puts Bernanke under Siege,” Washington Post, January 23, 2010, A1.

  “The time is now that we have got to end secrecy at the Fed”: “Senate Session, Part 1,” U.S. Senate, (Washington, DC: C-Span, May 11, 2010), http://www.c-spanvideo.org/program/293440-1.

  “I had to make a political decision”: Bernie Sanders, Federal News Service press conference transcript, Washington, DC, May 11, 2010, http://www.fednews.com/.

  CHAPTER 13: THE NEW GREEK ODYSSEY

  “It is very important”: Jean-Claude Trichet, press conference, European Central Bank, Frankfurt, Germany, Jan. 14, 2010, http://www.ecb.int/press/pressconf/2010/html/is100114.en.html.

  “I do not comment myself on absurd hypotheses”: Ibid.

  “Confident”: Howard Schneider and Anthony Faiola, “Hesitation by Leaders Drove Cost of Europe’s Crisis Higher,” Washington Post, June 16, 2010.

  “We have spent considerable effort”: Federal Reserve’s exit strategy, Before the House Committee on Financial Services, 112th Cong., February 10, 2010, statement by Ben S. Bernanke, Chairman of the Federal Reserve.

  “The global economic situation has . . . improved”: Jim Flaherty, “G7 Chair’s Summary,” remarks, G7 Meeting of Finance Ministers and Central Bank Governors, Iqaluit, Canada, February 6, 2010, http://www.g7.gc.ca/news-nouvelles-eng.html.

  “Is Greece making the German banks bankrupt?”: Carlo Bastasin, Saving Europe: How National Politics Nearly Destroyed the Euro (Washington, DC: Brookings Institution Press, 2012), 183.

  “It is the intention of the ECB’s Governing Council”: Jean-Claude Trichet, “Introductory statement before the Plenary of the European Parliament,” speech, European Parliament, Brussels, Belgium, March 25, 2010, http://www.ecb.int/press/key/date/2010/html/sp100325.en.html.

  “the IMF’s technical assistance is very important”: Jean-Claude Trichet, press conference, European Central Bank, Frankfurt, Germany, March 4, 2010.

  “I never said myself”: Jean-Claude Trichet, press conference, European Central Bank, Frankfurt, Germany, April 8, 2010.

  “the mechanism decided today”: Stephen Castle and Matthew Saltmarsh, “Europeans Reach Deal on Rescue Plan for Greece,” New York Times, March 25, 2010.

  Here’s a by-the-numbers summation: International Monetary Fund’s World Economic Outlook Database, GDP and other indicators, http://www.imf.org/.

  “It is a national and imperative need”: George A. Papandreou, “Imperative Need to Activate the Support Mechanism,” speech, Castelorizo, Greece, April 23, 2010, http://www.papandreou.gr.

  “frontloaded multiyear adjustment effort”: George Papaconstantinou and George Provopoulos, e-mail correspondence with Dominique Strauss-Kahn, May 3, 2010, http://www.greekembassy.org/Embassy/files/GREECE%20%E2%80%94%20MEMORANDUM%20TO%20IMF%20ON%20ECONOMIC%20AND%20FINANCIAL%20POLICIES14-05-20100.pdf.

  “We were also asked by the Heads of State and Government”: Jean-Claude Trichet, press conference, Lisbon, Portugal, May 6, 2010, http://www.ecb.int/press/pressconf/2010/html/is100506.en.html.

  The streets of Athens erupted in protests: Dan Bilefsky, “Three Reported Killed in Greek Protests,” New York Times, May 6, 2010, A6.

  “Better breaking the rule-book”: “The ECB’s Last Option: Bring out the Hank Paulson Bazooka,” Business Insider, May 5, 2010.

  “Is the purchase of government bonds an option: Trichet, press conference, May 6, 2010.

  The market was already down: “Findings Regarding the Market Events of May 6, 2010,” Report of the Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues, September 30, 2010, http://www.sec.gov/news/studies/2010/marketevents-report.pdf.

  At the moment of the crash: Bastasin, Saving Europe, 201.

  “My main message for the governments was”: James G. Neuger and Simon Kennedy, “Trichet Life Compass Points to Euro at Center of European Unity,” Bloomberg News, June 7, 2010.

  The ECB will buy bonds: “How the Euro Rescue Package Came Together,” Der Spiegel, May 17, 2010.

  “When a house is burning”: Ibid.

  “These people have been concerned with their own problems”: Gianni Toniolo, Central Bank Coordination at the Bank for International Settlements, 1930–1973 (Cambridge: Cambridge University Press, 2005), 198.

  It happened so often: David Wessel, In Fed We Trust: Ben Bernanke’s War on the Great Panic (New York: Crown Business 2009), 1.

  Geithner was also in frequent touch with Trichet: Calendars of the Treasury Secretary, http://www.treasury.gov/FOIA/Pages/calendars.aspx.

  As the finance ministers gathered in Brussels that Sunday: “How the Euro Rescue Package Came Together,” Der Spiegel.

  “With all due respect to Australia”: Ibid.

  “On some decisions there was unanimity”: David Tweed and Simone Meier, “Trichet Indicates ECB Decision to Buy Bonds Wasn’t Backed by All Members,” Bloomberg News, May 10, 2010.

  CHAPTER 14: THE KING’S SPEECH

  “This I found curious”: Alistair Darling, Back from the Brink: 1,000 Days at Number 11 (London: Atlantic Books 2011), 254.

  “It has been a quite a year”: Mervyn King, Speech at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, June 17, 2009.

  “Everyone knew what he was getting at”: Darling, Back from the Brink, 254.

  “Put your books in order”: Edmund Conway, Daily Telegraph, June 18, 2
009, 1.

  Queen Elizabeth II was sufficiently alarmed: Dan Conaghan, The Bank: Inside the Bank of England (London: Biteback Publishing, 2012), 219.

  “everyone did see it coming”: Charles Moore, “We Prevented a Great Depression, but People Have the Right to Be Angry,” Daily Telegraph, March 5, 2011, 4.

  “contribute to protecting and enhancing the stability”: Banking Act of 2009, http://www.legislation.gov.uk/ukpga/2009/1/part/7/crossheading/bank-of-england/enacted.

  “I do not think we can afford to wait”: Treasury—Minutes of Evidence: Bank of England May 2009 Inflation Report, http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/763/09062401.htm.

  “I just think it’s more complicated”: Mervyn King press conference, Quarterly Inflation Report, February 10, 2010, http://www.bankofengland.co.uk/publications/Documents/inflationreport/conf100210.pdf.

  “If there were any mobile phones”: Edmund Conway, “Watch Out: The Governor’s About; Mervyn King’s Latest Criticism of the Handling of the Recession Was a Body Blow to the PM, Says Edmund Conway,” Daily Telegraph, January 21, 2010, 23.

  “This is a decisive moment”: Daniel Bentley, “Top Economists Call for Rapid Deficit Cut,” Independent (London), February 14, 2010.

  Five times in the winter and spring of 2010: Conaghan, Back from the Brink, 241.

  “King expressed great concern”: U.S. Embassy London, “Bank of England Governor: Concern about Recovery,” Cable 10LONDON364, http://wikileaks.org/cable/2010/02/10LONDON364.html.

  “was the spectre which loomed over our talks”: David Laws, 22 Days in May: The Birth of the Lib Dem–Conservative Coalition (London: Biteback Publishing, 2010), 109.

  “The most important thing now”: Bank of England, Quarterly Inflation Report Q&A, May 12, 2010, http://www.bankofengland.co.uk/publications/Documents/inflationreport/conf120510.pdf.

  “The age of plenty is over”: James Kirkup, “First Swing of the Axe: Osborne £6 Billion ‘Taste’ of Where the Axe Will Fall,” Daily Telegraph, May 24, 2010, 1.

  “I do . . . Chancellor, welcome your commitment”: Mervyn King, Speech at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, June 16, 2010, http://www.bankofengland.co.uk/publications/Documents/speeches/2010/speech437.pdf.

  “thirst for power and influence”: David Blanchflower, “Mervyn King Must Go,” Guardian, December 1, 2010, http://www.guardian.co.uk/commentisfree/2010/dec/01/mervyn-king-bank-of-england.

  “the issue of confidence simply doesn’t arise”: Jennifer Ryan and Thomas Penny, “Cameron Backs King as Wikileaks Cites BOE Chief’s Concern on Inexperience,” Bloomberg News, December 1, 2010.

  “I have never discussed with [Osborne]”: Bank of England 2011 Inflation Report, Transcript of Treasury Select Committee, March 1, 2011, http://www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/798/11030102.htm.

  “Notwithstanding my affection for the rock music of the seventies”: Andrew Sentance, “Ten Good Reasons to Tighten,” speech before the Ashridge Alumni Business Briefing at the Institute of Directors, London, February 24, 2011, http://www.bankofengland.co.uk/publications/Documents/speeches/2011/speech476.pdf.

  “Central bankers’ fears on this score”: Adam Posen, “The Case for Doing More,” speech to Hull and Humber Chamber of Commerce, Industry, and Shipping, Hull, September 28, 2010, http://www.bankofengland.co.uk/publications/Documents/speeches/2010/speech449.pdf.

  CHAPTER 15: THE PERILOUS MAIDEN VOYAGE OF THE QE2

  “I’ve been telling you”: Glenn Beck, transcript, Fox News Network, New York, November 3, 2010.

  “We shouldn’t be playing around with inflation”: Robert Costa, “Palin to Bernanke: Cease and Desist,” National Review Online, November 7, 2010, http://www.nationalreview.com/corner/252715/palin-bernanke-cease-and-desist-robert-costa.

  “Look, we have Congress doing tax and spend”: Fox News Sunday with Chris Wallace, transcript, Fox News Network, New York, November 7, 2010.

  “I don’t recognize the economic argument behind this measure”: “Interview with German Finance Minister Schäuble,” Der Spiegel, November 8, 2010.

  “does not recognize . . . its obligation”: Christopher Bodeen, “China Knocks U.S. Plan to Pump Money into System,” Associated Press, November 8, 2010.

  In a seven-minute YouTube video: David Weigel, “The Man behind the Quantitative Easing Cartoon Speaks!” Slate, November 22, 2010.

  “The Federal Reserve . . . is not a repair shop”: Kevin M. Warsh, “The New Malaise and How to End It,” Wall Street Journal, November 8, 2010.

  Bernanke had in fact . . . urged Fed staff: Neil Irwin, “Federal Reserve Weighs Steps to Offset Slowdown in Economic Recovery,” Washington Post, July 8, 2010.

  “Good afternoon, everybody”: “Board of Governors of the Federal Reserve,” redacted transcript, March 7, 2012, 491, http://www.federalreserve.gov/foia/files/2007-2010-draft-fomc-transcript-excerpts.pdf.

  “Calls w/media”: Chairman’s Calendar, November 2010, obtained through Freedom of Information Act request to Federal Reserve Board of Governors.

  “One myth that’s out there”: 60 Minutes, transcript, CBS News, December 5, 2010.

  “I’m a little bit more sympathetic to central bankers now”: Ben Bernanke, press conference, Federal Reserve, Washington, DC, June 22, 2011.

  CHAPTER 16: THE CHOPPER, THE TROIKA, AND THE DEAUVILLE DEBACLE

  “ready to rip up the books”: Fiach Kelly, “The Day ‘Chopper’ Rolled into Town,” Irish Independent, November 19, 2010.

  “I’m not used to a situation where I’m so recognizable”: Declan Lynch, “Paddy Gets His Answer to the Only Question That Matters,” Sunday Independent, December 5, 2010.

  “nobody was really sure what the international officials looked like”: Kelly, “The Day ‘Chopper' Rolled into Town.”

  “nice welcoming lounge”: Finbarr Flyn, “Ryanair CEO Says $823 Million Dublin Terminal Explains Why Nation ‘Broke,’” Bloomberg News, November 19, 2010.

  As the Independent headlined a letter to the editor: Walter Naugton, “Better Chopra Than Our Hopeless Lot,” Irish Independent, November 22, 2010, http://www.independent.ie/opinion/letters/better-chopra-than-our-hopeless-lot-2429998.html.

  “I guess older people will be upset”: Henry McDonald, Elena Moya, and Andrew Clark, “From Defiance to Capitulation: Six Days That Humbled Ireland,” Guardian, Nov. 20, 2010.

  By the last week of August: “Consolidated financial statement of the Eurosystem as at 27 August 2010,” press release, European Central Bank, Frankfurt, Germany, August 27, 2010, http://www.ecb.int/press/pr/wfs/2010/html/fs100831.en.html.

  “Ladies and gentlemen, let’s not talk around it”: Angela Merkel, “Laudatio der Bundeskanzelerin der Bundesrepublic Deutschland,” speech, Aachen, Germany, May 13, 2010, translated by Carlo Bastasin in Saving Europe: How National Politics Nearly Destroyed the Euro (Washington, DC: Brookings Institution Press, 2012), 219.

  They met at the Hotel Royal: Bastasin, Saving Europe, 236.

  “providing the necessary arrangements”: “Franco-German Declaration: Statement for the France-Germany-Russia,” summit, Deauville, France, October 18, 2010, http://www.euo.dk/upload/application/pdf/1371f221/Franco-german_declaration.pdf.

  At just after 5 p.m.: Charles Forelle, David Gauthier-Villars, Brian Blackstone, and David Enrich, “As Ireland Flails, Europe Lurches across the Rubicon,” Wall Street Journal, December 27, 2010, A1.

  “We’re more or less used to Germany and France cooking things up”: Joshua Chaffin and Peter Spiegel, “Franco-German Bail-out Pact Divides EU,” Financial Times, October 24, 2010.

  “You’re going to destroy the euro!”: Forelle et al., “As Ireland Flails.”

  “We must be clear about how the markets work”: Bastasin, Saving Europe, 239.

  “The
IMF does not make necessarily the ex-ante working assumption”: Jean-Claude Trichet and Vitor Constancio, “Introductory statement with Q&A,” speech, Frankfurt, Germany, November 4, 2010, http://www.ecb.int/press/pressconf/2010/html/is101104.en.html.

  By November 2010: Universität Osnabrück, Euro Crisis Monitor, http://www.iew.uni-osnabrueck.de/en/8959.htm.

  “it is not a normal situation”: Trichet and Constancio, “Introductory statement.”

  “We took all the opportunities”: Arthur Beesley, “Ireland’s Meltdown Is the Outcome of the Policies of Its Elected Politicians,” Irish Times, January 15, 2011, 11.

  “I don’t believe there were any other real options”: James G. Neuger and Simon Kennedy, “Ireland Gets $113 Billion Bailout as EU Ministers Seek to Halt Debt Crisis,” Bloomberg News, November 29, 2010.

  “The heads of state or government of the euro area”: “European Council 16–17 December 2010 Conclusions,” transcript, Brussels, Belgium, January 25, 2011, http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf.

  “A Luta é Alegria”: Susana Morela Marques, “Portugal’s Eurovision Protest,” Guardian, May 2, 2011.

  “The only work we can get is ‘work experience’”: Peter Wise, “Portugal’s ‘Desperate Generation’ Cries Out,” Financial Times, March 11, 2011.

  “Enough is enough!”: “Greece: Clashes in Athens between Police and Protesters,” BBC News, May 11, 2011, http://www.bbc.co.uk/news/world-europe-13356923.

  The suicide rate in Greece in 2011: Erik Kirschbaum, “Suicides Have Greeks on Edge before Election,” Reuters, April 28, 2012.

  Tensions between the troika and Prime Minister George Papandreou’s government: Bastasin, Saving Europe, 275.

  “The package that is there”: Jussi Rosendahl and Terhi Kinnunen, “Populist Party Surges in Finn Poll, EU Aid at Risk,” Reuters, April 17, 2011.

  “The euro area needs someone who can change his mind”: Jean-Philippe LaCour, Karl Meyer, and Dominique Seux, “BCE: Conflit Paris-Berlin en vue sur la succession de Trichet” [ECB: Paris-Berlin Conflict for the Succession of Trichet], Les Echos, January 18, 2011, 8.