Wise muddling through

Everybody wants to be a striding titan. Almost all alpha-leaders want to be the brilliant visionary in a time of crisis — the one who sees the situation clearly, makes the bold plans and delivers the faithful to the other side.

It almost never works out that way. The historian Henry Adams concluded that “in all great emergencies … everyone was more or less wrong.” Abraham Lincoln didn’t feel like a heroic leader: “I claim not to have controlled events, but confess plainly that events have controlled me.” In real crises, the successful leaders are usually the ones who cope best with ignorance and error.

David Wessel’s about-to-be-released book, “In Fed We Trust,” gives a revealing blow-by-blow account of the recent financial crisis and illustrates this point.

It is a tale replete with error. In theory, Ben Bernanke, Henry Paulson and Tim Geithner were as well prepared as anyone for this sort of event. Bernanke had spent his life studying the Great Depression; Paulson had led the world’s most prestigious investment bank; Geithner had been involved in financial rescues in Asia and beyond.

Moreover, all of them were expecting some kind of crisis. They knew there had been a dangerous surge of debt.

And yet as the panic unfolded in 2007 and 2008, they continually underestimated its scope and implications. In July 2007, Bernanke estimated global losses from the subprime mortgages and other loans of $50 billion to $100 billion. The losses turned out to be in the neighborhood of $4 trillion. In October of 2007, Bernanke said the banking system was healthy and doubted that the housing woes would destabilize it. He was wrong.

Their decision not to bail out Lehman Brothers was based on a complete misreading of the economic psychology. Paulson was sick of doing bailouts. He seems to have had some sort of intuitive moral sense that it was time for some bank to pay for its mistakes. Bernanke and Geithner went along, and none of them anticipated the meltdown that followed.

But this is not a story of failure. It’s a story of effective muddling through. Bernanke & Company never really got control of events. But they did avert disaster and committed only a few big blunders. In the real world, that counts as a job well done.

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