Attempting to save Lehman Bros, like the other “too big to fail” institutions was like putting a Band-Aid on an amputation.
This is something I have believed since it happened....If Lehman had been bailed out, the TARP might not have been needed.
However, the horrible shape of our financial system would probably have assured a collapse for another reason anyway.
People will be second guessing this economic event for the next century.
yes. but you would have had to turn the clock back to 1989 to do it.
Yes, but you would have needed to arrest George Soros.
Yes. If the Community Reinvestment Act had been repealed. But there was also FASB Rule 157 which caused banks and portfolio managers to cascade liquidations as the rules forced them to mark long term debt instruments to a collapsing value. And then there was Fannie and Freddie. I say a YouTube of Franklin Raines testifying that he could safely run his portfolio of home loans at 50x leverage because home prices never went down, and he was cheered on (and protected) by Bawney Fwank.
There were a number of these things that came within each other’s orbit all at roughly the same time and they spiraled in on each other. If a one or two had been missing, the collapse would have been less severe.
And if so many borrowers had not been willing to take out loans they knew they couldn’t properly service, this would have never started. I distinctly recall an ad running on KMOX in St. Louis for about a week advertising home loans without a need to verify income.
On that point, The National Community Reinvestment Coalition (NCRC) found that from 1997 to 2007, $4.7 trillion in home loans were made under this Act. In 2007, over 50% of home loans were made to people who would normally have not qualified for one. According to a Reuters’ story, “S&P now projects defaults on subprime loans issued in 2005, 2006 and 2007 at 11 percent, 30 percent and 49 percent, respectively.”
Bush hate was so entrenched on both the right and left and that point that the psychological warfare purchased by types such as George Soros and William Buffet could not be undone. Combined with oil market manipulations by anti-American zealots around the globe and a media eager to incite domestic bank panics, it was a done deal.
I still admire Bush for his leadership. He outbid the panic mongers with a nearly $800 billion bailout package and then quietly spent less than $350 billion once the panic had passed.
All of Bush’s bailout money has been paid back and paid back with 5% interest. No one ever wants to talk about those parts of the events.
“No one knew which financial institutions would be protected and which wouldn’t;...Uncertainty rose; panic followed”
Many people much smarter and richer than I am have argued that gov’t tinkering was the root cause, and therefore the crisis either could have been avoided or would have been short-lived. This article seems to support that.
That's something for naive (particularly neoclassical-influenced) libertarians to mull over. Assuming a transition to a free-market economy can proceed seamlessly is assuming people act as if the government were irrelevant to the economy, except for discrete taxes, subsidies and prohibitions.
It's an easy trap to fall into for analytical minds, who like to break up human actions into components and assume one component doesn't spill over into another.
Regarding the overall point: the panic of '08 revealed a tiger by the tail. Government intervention has become pervasive, and we count on a lot of government guarantees without even realizing that we do.
“Curtis is a retired real estate developer in Easton, Pa. We are running his opinion in full because it is similar to that of many readers we hear from who believe that, contrary to those who question his ability and the wisdom of his policies, President Obama knows exactly what he wants to do and has been extraordinarily successful in doing it.”
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I don’t see how anyone who has the slightest inkling of what is going on in the real world could come to any other conclusion than that, “Obama knows exactly what he wants to do and has been extraordinarily successful in doing it.” To believe that his intentions are benign but he just can’t do one single thing right is like believing that we actually live on the INSIDE of the Earth rather than the OUTSIDE. It requires a willful suspension of normal thought processes. It is amazing that so many seem to actually believe it, not that some think otherwise.
If those who still claim to believe in Obama should witness a person being stabbed to death would they believe that the assailant is trying to remove a cancerous tumor to save the victim’s life? It would be just as reasonable.