Three officials who fought the financial crisis warn the next one might be harder to stop
Ben Bernanke speaks at the National Press Club, February 3, 2011 in Washington, DC. (Albert H. Teich /

The 2007 financial crisis was a watershed event in American history. The recovery defined the presidency of Barack Obama. The banking industry, in a deep hole after years of issuing bad mortgages to bundle into high-yield securities on Wall Street, was restructured by liquidations and a new regulatory framework.

The question is: are we prepared if it happens again?

Three top economic officials who fought the crisis seek to answer that question in a Politico editorial adapted from their new book — former Federal Reserve chairman Ben Bernanke, former New York Fed President Tim Geithner, and former Treasury Secretary Hank Paulson. Their verdict: maybe, but don't count on it.

"There are better safeguards in place to avoid a panic in the first place — the financial equivalent of more aggressive fire prevention measures and stronger fire-resistant building codes," they write. "But the emergency authorities for government officials to respond when an intense crisis does happen are in many ways even weaker than they were in 2007."

In particular, they finger Dodd-Frank, the sprawling package of financial reforms passed in 2010 that changed the banking industry more than any law since the New Deal. The law has made the banking system safer, they argue — but it has also made it harder to stabilize banks, and by extension the people and businesses whose wealth they manage, if they should fail.

"The Dodd-Frank regulatory reforms and the U.S.-led global effort to increase bank capital have produced more robust defenses against potential crises," they write, adding that derivatives markets are more transparent and safer, and financial regulators have a broader mandate to identify risks.

But, they add, some of the traditional methods to secure financial institutions have actually been curtailed by: the Treasury and FDIC's guarantee powers were rolled back, the Fed can no longer lend to nonbank entities, and the executive branch's power to assume financial risk in general was reduced. Congress could undo these changes, they note, but the weeks they would have to spend doing so are more time markets would spend in freefall.

"The financial system and the economy seem stronger today. But the world is full of risks," they conclude. "As a great philosopher warned: If you want peace, prepare for war."