The Myth That Sold the Wall Street Bailouts

[Crewleader]

September 16, 2014

Financial Fear-Mongering

The Myth That Sold the Wall Street Bailouts

by Dean Baker

This week marks the sixth anniversary of the collapse of Lehman Brothers. The investment bank’s bankruptcy accelerated the financial meltdown that began with the near collapse of the investment bank Bear Stearns in March 2008 (saved by the Federal Reserve and JPMorgan) and picked up steam with Fannie Mae and Freddie Mac going under the week before Lehman’s demise. The day after Lehman failed, the giant insurer AIG was set to collapse, only to be rescued by the Fed.

With the other Wall Street behemoths also on shaky ground, then–Treasury Secretary Henry Paulson ran to Capitol Hill, accompanied by Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner. Their message was clear: The apocalypse was nigh. They demanded Congress make an open-ended commitment to bail out the banks. In a message repeated endlessly by the punditocracy ever since, the failure to cough up the money would have led to a second Great Depression.

The claim was nonsense then, and it’s even greater nonsense now.

To be sure, without the helping hand of the government, most of the major Wall Street banks would have quickly collapsed. There was a full-fledged run on the big five investment banks. With Bear Stearns and Lehman already having faced bankruptcy, Merrill Lynch, Morgan Stanley and Goldman Sachs were certain to follow suit in the very near future. Citigroup and Bank of America were also bound to fail, by anyone’s calculations.

http://www.counterpunch.org/2014/09/16/the-myth-that-sold-the-wall-street-bailouts/

[blkmusclmachine]

1. DC is a racket

[newthinking]

2. The bailouts were just refilling after the theft - And we are still giving these guys almost free

unlimited play money.

Disgusting.

[1StrongBlackMan]

3. I'll revisit this OP later, to provide further comment; but ...

B.S. Dean Baker ... You can't say:

To be sure, without the helping hand of the government, most of the major Wall Street banks would have quickly collapsed. There was a full-fledged run on the big five investment banks. With Bear Stearns and Lehman already having faced bankruptcy, Merrill Lynch, Morgan Stanley and Goldman Sachs were certain to follow suit in the very near future. Citigroup and Bank of America were also bound to fail, by anyone’s calculations.

At best, JPMorgan and Wells Fargo might have survived, but even these two relatively healthy banks could well have been caught up in the maelstrom. This would have meant the demise of Wall Street as we know it. But would it have meant a second Great Depression, defined as a decade of double-digit unemployment?

And,

On Monday morning the bank is open for business as usual, either as part of a merger worked out by the FDIC or under the FDIC’s temporary management. Either way, business can proceed as usual, with the customers for the most part able to make transactions as if nothing had happened.

We don't know that! We didn't know it at the time; nor, is it clear, now.

Nor, can you note:

The FDIC doesn’t cover the investment banks, nor does it help other financial institutions that were caught in the chaos created by the collapse of the housing bubble, but it would ensure that we kept a system of payments in order so the country would be able to conduct its business.

and:

The collapse of the investment banks and the loss of wealth by those who had lent them money or had made uninsured loans to FDIC insured banks would have made the immediate downturn worse than what we saw in 2008 and ’09.

Finally, you can't say:

There is no reason, however, to believe this would have condemned us to a decade of stagnation. For we know the other big secret to avoid another Great Depression: Spend money.

Spend what money?

This is not to suggest that Banking, in general, and Investment Banking, in particular, do not require much more forceful regulation; but to pretend that the bail-outs were not the best, short-term, alternative for the global economy, because you SUSPECT there wouldn't have been financial devastation is speculative, at best.

(On a side note: Punditry, has got to be the best job in the world ... you can postulate whatever you wish, especially with the benefit of hind-sight, knowing that there is little price to pay, if you get/got it wrong!)

[Octafish]

4. Dean Baker is spot on.

The goal was to save Wall Street. And guess who got volunteered to pick up the $16 trillion tab?

[WillyT]

5. HUGE K & R !!! - Thank You !!!

[Crewleader]

6. Hello WillyT

[polynomial]

7. trade stocks and bonds on ebay

The incredible American economic experiment is becoming simple common sense. America’s basic Constitutional values have never been unleashed. Americans have been punked from the get go.

As the famous saying goes “ it does not matter who is president as long as the money is controlled by someone else “ I believe that was Vanderbilt that made the quote or Rothschild. These are people with a great deal more experience than me, figuring how to skim every nickel from the citizen.

However, today with the unexpected diversity in the Internet communications that one percent that usually enjoyed the media control it’s conflation, obfuscation with all the advantages in the amalgamation is starting to reveal a temper in the way of showing ignorance with that history of obvious deception. Right wing lies are running wild.

That famous quote can be expanded from not just the president but to those of the Supreme Court, a Cabinet, Congress, Governors, and legions of corporate leaders and appointed judges.

It will become obvious someday to halt any screw up will be to simply reverse the concept in the mortgage as Americans are people and corporations are people will be challenged.

If the common citizen is a people and people are a corporation there should be legal symmetry in what the average corporation does and the same should apply to the citizen.

Actually the whole concept of eminent domain is about to be challenged. In the most common sense the common citizen should be able to have Cayman Island accounts or secret Swiss banking too. Or be able to sell and trade stocks and bonds on ebay.

[Crewleader]

9. Nice meeting you polynomial

I look forward to your future posts friend.

[quadrature]

8. bailouts...good v. bad...who decides?

GM
Chrysler
AIG
BS
Lehman
Fred
Fannie