Five Years Later, Observations on the Financial Crisis Offers Insiders’ Perspectives on the Events Leading Up to the Financial Crisis of 2008 and Its Immediate Aftermath

Tuesday, September 3, 2013
Observations on the Financial Crisis by Keith Hennessey and Edward Lazear
Observations on the Financial Crisis by Keith Hennessey and Edward Lazear

Hoover Institution Press today released Observations on the Financial Crisis, an essay in which Keith Hennessey and Edward Lazear draw on their experiences in the Bush White House to offer nineteen observations key to understanding the current financial crisis. Hennessey and Lazear highlight a number of generally overlooked points and correct popular misinterpretations of policy decisions made during the last year of the Bush administration and the first few months of the of the Obama administration.

“As we embark on the fifth anniversary of the financial crisis, we thought it important, given our vantage point at that time, to provide a set of observations that we believe are key to understanding the crisis,” said Keith Hennessey.  “The analysis is based on economic reasoning as well as an examination of the evidence that the passage of time permits.”

The effects of the financial crisis of September 2008 are still with us today. The authors point out that, although the financial panic began in September 2008, the financial crisis actually began long before, as early as August 2007. The panic of September 2008 was triggered by a sequence of events, not just by the Lehman failure but in large part by an unprecedented flow of funds into the United States and other developed economies.

The authors also explain why President Bush’s decision to extend auto loans was partly influenced by the timing of the presidential transition, describing how Presidents Bush and Obama took opposite approaches to firm-level decisions. Hennessey and Lazear conclude that the exceptionally slow recovery has given us an economy that is growing but has not yet returned to its prior level.

“Our interpretation is that we have not adopted the kind of pro-growth policies that can return us to the higher growth rates of the past,” said Edward Lazear. “Tried and true policies for enhanced economic growth include low and efficiently structured taxes, sensible regulation where benefits exceed the costs, fiscal responsibility, and an active free trade agenda.  On all four counts, there is significant room for improvement.”

ABOUT THE AUTHORS: Keith Hennessey served as deputy director of the White House National Economic Council from 2002 through 2007 and as a director from the end of 2007 until the end of the Bush presidency in January 2009. He is a lecturer at Stanford’s Graduate School of Business and Stanford Law School. Edward Lazear served as chairman of the Council of Economic Advisers from early 2006 through the end of the Bush presidency. He is the Jack Steele Parker Professor of Human Resources Management and Economics at Stanford’s Graduate School of Business and the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution.

ABOUT THE HOOVER INSTITUTION: The Hoover Institution at Stanford University is a public policy research center devoted to the advanced study of politics, economics, and political economy—both domestic and foreign—as well as international affairs. With its world-renowned group of scholars and ongoing programs of policy-oriented research, the Hoover Institution puts its accumulated knowledge to work as a prominent contributor to the world marketplace of ideas defining a free society.

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