Stewards of the Market

How the Federal Reserve Made Sense of the Financial Crisis

ISBN 9780674980785

Publication date: 03/10/2020

A fast-paced, behind-closed-doors account of the Federal Reserve’s decision making during the 2008 financial crisis, showing how Fed policymakers overcame their own assumptions to contain the disaster.

The financial crisis of 2008 led to the collapse of several major banks and thrust the US economy into the deepest recession since the Great Depression. The Federal Reserve was the agency most responsible for maintaining the nation’s economic stability. And the Fed’s Open Market Committee was a twelve-member body at the epicenter, making sense of the unfolding crisis and fashioning a response. This is the story of how they failed, learned, and staved off catastrophe.

Drawing on verbatim transcripts of the committee’s closed-door meetings, Mitchel Abolafia puts readers in the room with the Federal Reserve’s senior policymaking group. Abolafia uncovers what the Fed’s policymakers knew before, during, and after the collapse. He explores how their biases and intellectual commitments both helped and hindered as they made sense of the emergency. In an original contribution to the sociology of finance, Stewards of the Market examines the social and cultural factors that shaped the Fed’s response, one marked by missed cues and analytic failures but also by successful improvisations and innovations.

Ideas, traditions, and power all played their roles in the Fed’s handling of the crisis. In particular, Abolafia demonstrates that the Fed’s adherence to conflicting theories of self-correcting markets contributed to the committee’s doubts and decisions. A vivid portrait of the world’s most powerful central bank in a moment of high stakes, Stewards of the Market is rich with insights for the next financial downturn.

Praise

Abolafia peels back the technocratic veneer and exposes to the reader how deeply social the Fed decision-making body truly is…A refreshing take on the financial crisis…This book reveals the limits of our civic institutions, not only in their interpretive capacity as social bodies but also in the face of political pressure.

—Derek Harmon, Administrative Science Quarterly
This is a great book…Those who are interested in the history of monetary policy will take away many important lessons about the Fed, and how the Fed’s leaders and the institution itself, learned to adapt their policies to the new economic paradigm it faced.

—Harvey Rosenblum, Business Economics
A detailed analysis of how the Federal Reserve transformed itself from a passive to an active regulator of the financial market…A fascinating read for researchers in economic, political, and comparative/historical sociology…Abolafia elegantly decodes the economic jargon with a page-turning narrative.

—Ken-Hou Lin, Contemporary Sociology
Mitchel Abolafia is known as the pioneer of the modern sociology of finance. In this book, his magnum opus, he uses the protocols from the meetings of the Federal Reserve to analyze how its members thought and deliberated during the financial crisis of 2008. As the reader will find out, by having this single focus, the author is able to provide several new puzzle pieces to what actually happened during this momentous event.

—Richard Swedberg, author of The Art of Social Theory
The Federal Open Market Committee is one of the most important decision-making bodies in the world. Its officials must gaze into the uncertain world of the economy and try to predict what might happen next. Stewards of the Market unpacks the black box of their deliberations by focusing on how they came to understand the financial crisis of 2008. This fascinating book should be of interest to anyone who wants to understand how the Federal Reserve missed the crisis but saved the economy.

—Neil Fligstein, author of The Transformation of Corporate Control
This riveting book shows, in real time and in great detail, how members of the Federal Reserve tried to make sense of the 2008 financial crisis. Abolafia shows that for all of their immense knowledge, the Fed’s members found themselves relying on culturally-defined scripts and grasping at straws, blinded by an almost religious faith in the self-correcting character of the financial markets. Yet unlike many critics, Abolafia treats his subjects with respect, acknowledging the enormity of the difficulties they faced. This book is essential reading for anyone who hopes to understand the previous crisis, as well as those hoping to prevent the next one.

—Mark Mizruchi, author of The Fracturing of the American Corporate Elite

Author

Mitchel Y. Abolafia is Professor at the Rockefeller College of Public Affairs and Policy, University at Albany, State University of New York. He has taught at Cornell’s Johnson School of Management and MIT’s Sloan School of Management and is the author of Making Markets: Opportunism and Restraint on Wall Street.