After the Music Stopped

In his nonfiction work After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead (2013), American economist and Princeton University professor Alan S. Blinder, explains the financial crisis of 2007 and 2008 in clear, accessible terms for a lay audience, describing the perfect storm of events that came together to create the first significant economic crunch of the 21st century. After the Music Stopped was a New York Times bestseller, as well as one of 2013's ten best books selected by Michiko Kakutani of the New York Times Book Review.

Blinder separates the book into six parts. In the first, he provides an overview of the changing financial climate that led to the 2007 downturn. This slippery slope began with far too little Wall Street regulation—so little, in fact, that it endangered the public good. The first casualty was the housing bubble—a run-up in housing prices driven by demand, speculation, and spending—which burst, causing home values to crash. Then, there was the bursting of what Blinder calls the "bond bubble," the same idea as the housing bubble, only substituting bonds for housing. The stock market subsequently destabilized, and soon every major aspect of the financial sector hovered on the point of collapse. In the words of then-Federal Reserve Chairman Ben Bernanke, we were a whisper away from "a global financial meltdown." In the subsequent parts of the book, Blinder explores this chain of events in great detail, as well as the series of actions that pulled the economy back from the brink of destruction.

In the second part of After the Music Stopped, Blinder looks at the causes in more depth. He makes it clear that there was no single culprit or cause behind the financial decline. Instead, it was the product of seven key weaknesses: inflated prices, especially for housing and bonds; heavy borrowing throughout the entire economy; lackluster, virtually nonexistent government oversight and regulation; unethical banking practices (i.e., subprime mortgage lending and similar dubious "services"); unregulated securities and derivatives built on bad mortgages; the appalling performance of statistical rating agencies; and the outlandish, absurd compensation of Wall Street executives. Blinder then shines a light on these weaknesses by clarifying each one and underscoring how they were essential contributors to the ensuing economic havoc.



The third part of the book examines the many steps taken to save the economy and the financial markets as we know them. These steps were unprecedented in American history, with the Federal Reserve and the US Treasury stepping in to staunch the blood-flow in hopes of averting a second Great Depression. One of those steps was the creation of TARP, the Troubled Asset Relief Program launched by the Treasury to stabilize the American financial system, reestablish economic growth, and ease the number of foreclosures stemming from the housing collapse. Congress also passed the Economic Stimulus Act, which provided several types of economic stimuli to jumpstart the economy. These are just two of several key interventions Blinder delves into here.

In the fourth part of the book, aptly titled "The Road to Reform," we learn about some of the roadblocks—or, perhaps more appropriately, the speedbumps—that the government enacted to avoid this same type of disaster from occurring again. One of the biggest was the decision to bail out the biggest banks in the nation. While this was ostensibly done to save the financial system as we know it, it was a decision that came with major political backlash. Blinder argues that even President Obama could not adequately explain the purpose of such a sweeping bailout plan. If banks were "too big to fail," and they ended up failing, was it the responsibility of law-abiding taxpayers to bail them out? Wishy-washy, unsatisfying answers to this central question generated much political backlash, raising awareness about the out-of-control abuses of power and money that were happening on Wall Street and the seemingly well-placed, high officeholders who were in a position to provide a safety net. But Blinder also recognizes that failing to do something major would prolong a recession and likely make things worse—even if that something was antithetical to the traditional American values of self-sufficiency and a specific brand of pull-yourself-up-by-the-bootstraps self-reliance.

The fifth and sixth portions of the book focus on looking ahead. Blinder discusses the measures taken to get the Fed back in standard operating mode. He also offers insights into the European Debt Crisis of 2009 and its relationship to what went down on American shores the year before. Finally, he reflects on the legacies of the crisis and devises a list of commandments that he urges our economic leaders to follow if we don't want to see a replay of 2007 and 2008.



After the Music Stopped includes charts, graphs, notes on the text, a list of sources, and an index.