Reply #13: Was the Great Panic of 2008 preventable? By Robert J. Samuelson

[Demeter]

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/12/AR2010091202883.html?nav=rss_opinion/columns


It's been two years since Lehman Brothers failed (Sept. 15, 2008), and we still can't conclusively answer this question: What if the government had saved Lehman? Its bankruptcy was pivotal. Until then, deteriorating housing and mortgage markets had triggered what seemed a serious -- but not unprecedented -- recession. Once Lehman failed, the economy went into a frenzied free fall. It's hard not to wonder whether some of the ensuing turmoil could have been avoided.

(IT'S HARD TO EXPLAIN HOW THE FRAUD BUBBLE LASTED AS LONG AS IT DID, IMO! IT WAS AN ACCIDENT WAITING FOR A TRIGGER. IF NOT LEHMAN'S, THEN SOMETHING ELSE. A WORLD-WIDE ENRON.)

Paulson, Bernanke and Geithner later performed commendably in preventing a wider financial collapse and restoring confidence that, arguably, averted a second Great Depression. Though their measures (TARP, government loan guarantees and Fed lending facilities) were unpopular, they ultimately calmed markets. But the lingering question is whether Paulson & Co. were cleaning up a mess they helped create. Even now, it's unclear whether Lehman lacked sufficient collateral to justify a loan. There was a "senseless panic," argues William Isaac, former head of the Federal Deposit Insurance Corp., in a book with that title.

Or perhaps not. Maybe saving Lehman would merely have postponed panic and requests for broader powers to deal with a weakening financial system. Citigroup and Bank of America, among others, needed help. The nature of crisis is that people are surprised and overwhelmed by events, and in that sense, the mistakes made in dealing with Lehman might have been unavoidable. One way or the other, the first draft of history is still being written -- and it remains very rough.

BLIND AND WISHFUL THINKING STRIKES AGAIN!