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August 17, 2018


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The criticism that Lehman should have been saved is an after the fact one that ignores the political realities that faced the executive branch. The collapse of Bear Stearns just a few months earlier led to strong criticism that the New York Fed had played a major role in cajoling JP Morgan Chase to jump in. There was zero political support for bailing out Lehman in Congress. The $700 billion bill initially went down to defeat in the House only to be reversed when the market collapsed on that vote.

What should concern us today is that the federal government imposed tens of billions of dollars of fines on the banks (B of A, Chase, Wells) that bought out failing institutions like Merrill, Countrywide, Wachovia, Wash. Mutual etc. for misconduct at those institutions prior to their acquisition. There should be no expectation that private sector buyouts during the next crisis will be available from any management that remembers how the political system responded this past time.

Anthony Gaughan

That is a great point, Paul.

In his autobiography, former President George W. Bush writes that he knew the first TARP "vote would be a disaster" because of political opposition to bailing out Wall Street. In fact, he had personally lobbied members of the House Republican caucus without success before the failed vote on TARP on Monday, September 29. But when the Dow fell 777 points the next day, the political dynamics changed entirely. As Bush writes, "My warnings about the system going down had a lot more credibility this time." On Friday, Oct. 3 the bill passed 263-171, but that means that 171 members still voted against it!

Accordingly, I absolutely agree that there was zero chance of Congressional approval for a Lehman bailout in early September 2008. Indeed, with the broader systemic risks only dimly understood by Congress and the public at that point, the political blowback against a Lehman bailout would have been immense and deeply unpredictable.

Thanks so much for your comment, Paul!

Scott Pruitt Edndowed Chair in Environmental Justice

What if this happened on Our Dear Leader's watch? He would blame Crooked Hillary, Obama, Democrats, Liberals, Mueller, Europe, Pelosi, low IQ Waters, Blacks, Hispanics, McCain fake Media, CNN...Then let the country go to Hell. At least Bush put aside political rancor and opposition to the Iraq War and Hurricane Katrina to reach out to all who could alleviate this crisis... He didn't hold a grudge and punish folks with dissenting view.

Scott Pruitt Edndowed Chair in Environmental Justice

One more comment. I am not sure if a second Great Depression was averted. I have driven thousands of miles of back roads traveling to rural courthouses; these small towns are not booming and the countryside is filled with shanties and rusted automobiles. When the only business in town is an antique "mall," with a dusty window and "Open" flag, it tells me, that this is a sign of economic strain. Many towns are like that...

Anthony Gaughan

That is an important point, Scott Pruitt Endowed Chair in Environmental Justice. The economic decline of rural and small-town America has not gotten enough coverage nationally. But it is starting to get more attention. In fact, there is an article on the problem of stagnant wages in a booming economy in this morning's Washington Post that uses Ames, Iowa as a case study. Here is a link to it:

Thank you for your comment, Scott.


He plundered the treasury to pay off Goldman's gambling debts and to bail out the rich at the expense of the poor. He came up through the most disgusting corridors of power, and his most frequent visitor at Treasury was . . . Blankfield the CEO of Goldman. A truly disgusting human being.

Scott Pruitt Edndowed Chair in Environmental Justice


I think you got the CEO' name and facts wrong. Evidence? Facts???

Steve Diamond

I give a thumbs down to this documentary. It was all about how Hank the All American saved the world. It was not really a serious or even helpful introductory analysis to the crisis. I have heard that the new Adam Tooze book is quite good, though obviously a lot more work. In any case, for short and pithy I still think the Big Short is the way to go.

Anthony Gaughan

Steve, I've heard that the Adam Tooze book is good too. And I also loved the Big Short! Have a good weekend.

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