History is composed not only of what happened but of what didn't happen. The latter, of course, is impossible to really know. We do know what happened to the U.S. and world economies during the past year, and it wasn't pretty. We know the damage caused by the plague of subprime mortgages and the fallout from risky investment vehicles that bankers invented but did not understand, and we know that we ourselves probably borrowed and spent more than we should have. What we don't know is what the economy and our lives would look like if a few individuals had not acted on our behalf and had simply sat on their hands. We don't know what didn't happen, but I'm convinced that the economy would look much, much worse.
One scholar has written that the Great Depression of the 1930s could have been averted if the Federal Reserve at the time hadn't constricted the money supply, let a third of American banks go under and told Americans to tighten their belts. That scholar, Ben Bernanke, just happened to be chairman of the Federal Reserve when the economy this year appeared to be headed for a repeat performance.
We've rarely had such a perfect revision of the cliché that those who do not learn from history are doomed to repeat it. Bernanke didn't just learn from history; he wrote it himself and was damned if he was going to repeat it. Bernanke decided to do the opposite of what the Fed did back in the '30s: he would loosen the money supply as far as it would go, he would save as many banks as he could, and he wasn't going to hector the American public about pulling up their socks.
As Bernanke said when we interviewed him this month, he did not see the crisis coming, and he probably did not react as fast as he should have reacted. His defense against the criticism that he rescued bloated banks and their overpaid execs is that the system itself is the problem: no bank should be too big to fail, but when it is, the alternative to saving it is destroying the livelihood of millions. There is an enormous difference between the financial system and the economy, but if the financial system fails, it takes the economy down with it.
Senior correspondent Michael Grunwald's magisterial piece about Bernanke and the economy is also a lively explanation of things we all talk about but don't always understand: the importance of the money supply, what the Fed does, how banks work, why loans are vital. Grunwald spent two months writing and reporting the story, including his own extensive crash course on the Fed. He had three long interviews with the Fed chairman, including one in St. Andrews, Scotland, at the G-20 summit in November. Bernanke's sit-down with Grunwald, assistant managing editor Michael Duffy, Time Inc. editor-in-chief John Huey and me was his first full on-the-record interview with a print publication. Duffy, who knows the ways of Washington as well as anyone, expertly supervised the cover package. Dan Winters shot the evocative images of the Fed chairman, including some on the Fed squash court, where he shoots baskets to let off steam.
This issue is a wonderfully rich one, with powerful pieces on our short list of runners-up: Joe Klein on General Stanley McChrystal, Austin Ramzy on the Chinese worker, Karen Tumulty on Nancy Pelosi and Sean Gregory on Usain Bolt. We also have an expanded Farewells section about those who died this past year, superlatively edited by Radhika Jones. That includes Keith Richards on Les Paul, Richard Lugar on Corazon Aquino and Bill Gates on Norman Borlaug, father of the Green Revolution. Here's to a great 2010.