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Home Publications Blogs Beat the Press Andrew Ross Sorkin's Limited Imagination

Andrew Ross Sorkin's Limited Imagination

Tuesday, 10 September 2013 05:02

Andrew Ross Sorkin shows his range of thought goes from one 40 yard line to the other when he contemplates a world where the government decided to rescue Lehman rather than allow it to fail. He considers various bailout scenarios, all of which leave the welfare dependents on Wall Street intact.

There was an alternative. It was possible to allow the market to work its magic, which would have certainly destroyed the other three remaining independent investment banks (Goldman Sachs, Morgan Stanley, and Merrill Lynch). Two of the megabanks, Citigroup and Bank of America, which were on life support at the time, surely would have failed as well. It is possible that the other two megabanks, J.P. Morgan and Wells Fargo, also would have been dragged down as well.

In this world, we would have quickly eliminated much of the waste that has developed over the decades in a coddled financial sector that uses its political power to get hundreds of billions of dollars of implicit and explicit subsidies from the government. The economy would have taken a big hit, but those of us old enough to remember 2008 recall that the economy did take a big hit even with the bailouts. 

It would have been necessary to have major stimulus to reboot the economy, but spending money is a political problem, not an economic one. (Most of us know how to spend money.) It is certainly plausible that serious stimulus would have been easier with the Wall Street gang put out on the street, dodging law suits and indictments, rather than advising President Obama.

Unfortunately, Andrew Ross Sorkin can't even think of such possibilities.

Comments (15)Add Comment
Economic Predators Rescued to Keep Economic Scavengers in Their Place
written by Last Mover, September 10, 2013 6:45

Crisis brings those rare opportunities to change things for the good. That's why things were not changed for the big investment banks.

They and the 1% are the lifeblood of Darwinian Socialism in America, the economic predators who must be fed practically all of the economic gains since the crisis to survive.

That leaves the rest as economic scavengers, roaming the barren economic landscape of America searching for a carcass of economic roadkill here and there to cling to for survival.

Brother, sister, can you spare a dime? No? A job? No? An in-kind handout of food, clothing and shelter? No? Something to scavenge? Yes!?

Oh thank you dear sir and madam for the trickle down of scavenging entrails we receive so gratefully in return for rescuing you from the ravages of free market competition.

We know you worship the virtures of free markets everyday in your monopoly temples of economic predation. And as the grateful scavengers we are for what scraps you may choose to leave us, we know you are preaching to the choir, don't we.
Wasn't temporary nationalization a better option?
written by Another Scott, September 10, 2013 7:09
Didn't one of those Economist guys work this out about 200 years ago? "Lend freely at a penalty rate." Let the banksters come to the Treasury or the Fed and get all the money they need, but make sure they pay the price in the process. Make them lose control by giving the US government collateral and temporary control. Make them pay a hefty interest rate when they've recovered. Make them shrink so they're not a risk in the future.

Of course the politics would be difficult, especially will insane people in the House. But sometimes you have to do the right thing even when the politics are difficult...

Letting the banks merge and become ever larger to bury the problems wasn't the solution.

Am I missing something?

Thanks. I greatly enjoy your commentary, Dean.

written by Kat, September 10, 2013 9:05
Rather ironic to have a quote from Voltaire in an article by the Pangloss of The Paper of Record, no?
written by skeptonomist, September 10, 2013 9:13
Why would bailing out Lehman have prevented a crash? It would not have changed the rotten financial structure and practices, but on the contrary would have encouraged even more risk-taking. There is no reason to think that the problems would have been corrected. A crash would only have been postponed, probably not for very long, and the exposure would have increased in the meantime.

Looking on the bright side, there may be more resistance to bailouts in the next crash, but on the other hand where is the planning for it? What do the candidates for Fed Chair plan to do when banking threatens to collapse again? How about the Treasury secretary?

Greenspan looked mighty silly when he seemed to be thinking around 2000 that cycles had been abolished, but I don't see that many leaders or economists are doing much better now. Nothing is more certain than that there will be more crashes - this doesn't take imagination, just a consideration of history. But apparently it is also certain that authorities will be unprepared again.
Bagehot etc.
written by David, September 10, 2013 9:28
As Another Scott says, Bagehot had a prescription, but Paulson decided to give them cash at a very good rate (as the Chase prez said at the meeting of Paulson with bank heads), which supposedly was an inducement, but when you're up against your survival constraint whatcha gonna do? So, Paulson gets an F in system management, in my book. Of course, he made a ton of money doing what he did, so why he's not in prison for life is beyond my ken. But maybe there is more hidden from the Flow of Funds that we cannot see.

For one thing, JPM would have survived this. Only JPM could have survived. That would have really screwed with the money market, hence everybody else.

It wasn't done well. Paulson let those folks live to play another day, but he didn't make them pay the entrance fee. I'm guessing it also had something to do with financing the wars. Anyway, what a mess.

Now that the Fed realizes they need to support the market based credit system for the money system to work, they need to bring those folks under the umbrella, before the rats eat the entire hold of the ship.
ah refreshing to see Dean reveal his austrian roots..., Low-rated comment [Show]
Pete wrong again
written by Peter K., September 10, 2013 10:00
Austrians wouldn't support a massive fiscal stimulus as Mr. Baker does. They'd want to liquidate, liquidate, liquidate which didn't work well during the Great Depression. Only WWII got the world out of it.
written by James, September 10, 2013 10:19
Sorkin doesn't have the courage to tackle the out-of-control excess, waste on Wall Street.

That has been the line all those rich Peterson folks lamenting about how Dems don't have courage to reform SS, Medicare, out of control spedning, etc.
written by Robert Goodman, September 10, 2013 10:36
...with the Sorkin brand? How mean spirited.
written by JDM, September 10, 2013 11:21
In 2008 I was snowed by the idea that letting these businesses fail would be horrible for the rest of us, and even wrote that in comments here (which Dean countered with what I've since seen was a very understandable note of exasperation). Within a year it was obvious even to financial neophytes like me who were at least capable of learning that letting those failures fail and letting their failed management leave with them would have been far better in the long run, and likely little worse in the short run, for everyone except a few people who ran their businesses into the ground and those who bet on them and cheered them on as they did it.

Thank you Dean for pointing these things out, and continuing to do so, even though I imagine it must be an extremely frustrating job at times. Some of us - not Sorkin, apparently, but some if ud - can and do learn.
written by watermelonpunch, September 10, 2013 4:42
What JDM said.
It is not in vain.

Not knowing much about economics at the time, in 2008 I was very much confused and concerned about the whole thing.
Of course, I think at the time, I expected that these banks that were bailed out - the guilty parties in charge of the whole mess would be somehow held accountable, punished under the law where appropriate, and by heavens, of course not allowed to keep their jobs and rake in more loot pay & bonuses in the process, and have absolutely no change in the regulations or guidelines for financial services business practices!

I see now that it was a package deal. And there were obviously a lot of people who understood that then, but were not given the opportunity to speak in the loudest voice... and even now there are parts of that package that would seek to silence them still now.
written by a, September 11, 2013 8:15
Bravo, from one who also thought at the time the best solution was to let the bad banks go under.
discipline versus elasticity
written by David, September 11, 2013 2:53
I finally got around to reading Dean's more detailed article on this in Truthout (http://www.truth-out.org/news/...ssion-myth), a good read. That is a curious little fact about Bernanke establishing the special lending facility after TARP (and just one week delay). AND the whole point of establishing a central bank is to keep liquidity in the system while still enforcing the discipline. But now we're still stuck with the brat pack of banking.
Decapitate and Recapitalize
written by Sustainable Gains, September 11, 2013 3:40
Was the missing policy choice in 2008-2009. Take down the failed financial leadership, flush the balance sheets back to solvency, and reopen FDIC style with the same branch locations and mostly the same employees. "Next Time, Let the Bad Banks Fail" doesn't mean "close the banks"; it means "throw out the management that destroyed the balance sheets". The FDIC does it all the time for the smaller banks and the entire concept of "too big to fail" should be revolting to citizens of a democratic, rule-of-law nation.

Thanks for pointing it out; now maybe next time around we'll be ready? Or will that be "fighting the last war"?

article in the economist ...
written by David, September 12, 2013 11:28
http://www.economist.com/news/...|42549698|discusses how Wells Fargo was the big winner in banking from the crisis.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.