Weekend Economists Tickle the Ivories September 20-22, 2013

[Demeter]

23. Robert Prasch: The “Lessons” that Wall Street, Treasury, and the White House Need You to Believe Ab

Robert Prasch: The “Lessons” that Wall Street, Treasury, and the White House Need You to Believe About the Lehman Collapse

http://www.nakedcapitalism.com/2013/09/robert-prasch-the-lessons-that-wall-street-treasury-and-the-white-house-need-you-to-believe-about-the-lehman-collapse.html#wH3BmHJTZp5o9dXY.99

Five long years have passed since the demise of the once venerable firm of Lehman Brothers. To mark the occasion, Wall Street, the United States Treasury Department, the White House, and their several political proxies and spokespersons have taken to the mass media to instruct the public in the “lessons” to be drawn from the financial crisis of 2007-09. Regrettably, we are witnessing the propagation of several self-serving falsehoods in the hope that the public can be induced to embrace them now that the immediacy of the events in question is in the past. Some of the lessons are so flagrantly false that they demand immediate correction.

No One Saw It Coming

The Crisis was Almost Exclusively About Liquidity

TARP was the Only “Responsible” Choice in 2008 DETAILS AT LINK

I could go on, as many other falsehoods about the fateful autumn of 2008 are being trotted about today, although they do not seem to be getting much traction with the public. An example is the often-heard assertion that the Dodd-Frank Act ended TBTF and that Americans will never again be asked to bail out Wall Street. To my knowledge, the only people who say they believe it are on payroll of Wall Street, the Treasury, or the White House. Moreover, the low interest rates that America’s largest banks pay to get buyers to purchase their bonds suggests that sophisticated players believe that the guarantee remains very much in place.

Unfortunately, the pretense that TBTF is no longer operative is more than just an amusing vanity held by our political classes and their sponsors among our nation’s largest financial firms. This is a pretense that can and does have pernicious consequences. The guarantee means, in effect, that the executives of America’s TBTF banks are overpaid civil servants who have the authority to create financial obligations fully backed by the United States government. But the pretense that there is no guarantee means that they can do this without any oversight. I don’t know about you, but given what we have seen of the judgment and ethics of these individuals, I am less than comfortable with this arrangement.