Brad DeLong — Rob Johnson and George Soros: A Better Bailout Was Possible

Rob Johnson and George Soros: A Better Bailout Was Possible: "A critical opportunity was missed when the burden of post-crisis adjustment was tilted heavily in favor of creditors relative to debtors.... When President Barack Obama’s administration arrived, one of us (Soros) repeatedly appealed to Summers... [for] equity injection into fragile financial institutions and... writ[ing] down mortgages to a realistic market value.... Summers objected that ... such a policy reeked of socialism and America is not a socialist country...

The political cost was the Democrats losing both the presidency, the legislature, and most state capitals, largely as a result of failure to stand up.

Grasping Reality
Rob Johnson and George Soros: A Better Bailout Was Possible
Brad DeLong | Professor of Economics, UCAL Berkeley

The Lehman 10th Anniversary spin as a Teachable Moment

Michael Hudson was one of the few that predicted the crisis. He explains how the foundation for the next crisis was laid by the bank bailouts by rescuing creditors instead of debtors.

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
The Lehman 10th Anniversary spin as a Teachable Moment
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

John T. Harvey — Four Lessons (Not) Learned From The Financial Crisis

Here’s a short list of what we should have learned but didn’t.

Forbes — Pragmatic Economics
Four Lessons (Not) Learned From The Financial CrisisJohn T. Harvey | Professor of Economics, Texas Christian University

Barkley Rosser — The Minsky Moment Ten Years After

… as Neil Schirmer in The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a fullout global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet. These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities. This was the save the Fed pulled off at the worst moment of the Minsky Moment. The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

I did not know this, did you?

Econospeak
The Minsky Moment Ten Years After
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University

Bill Mitchell — Precarious private balance sheets driven by fiscal austerity is the problem

The media has been giving a lot of attention in the last week to the 10-year anniversary of the Lehman Brothers crash which occurred on September 15, 2008 and marked the realisation, after months of denial, that there was a financial crisis underway. Lots of articles have been published recently about what we have learned from this historical episode. I thought that the Rolling Stone article by Matt Taibbi (September 13, 2018) – Ten Years After the Crash, We’ve Learned Nothing – pretty much summed it up. We have learned very little. Commentators still construct the crisis as a sovereign debt problem and demand that governments reduce fiscal deficits to give them ‘space’ to defend the economy in the next crisis. They are also noting that the balance sheets of the non-government sector components – households and firms – are looking rather precarious. They also tie that in with flat wages growth and a run down in household saving. But the link between the fiscal data and the non-government borrowing data is never made. So we are moving headlong into the next crisis with very little understanding of the relationship between government and non-government. And we are increasingly relying on private sector debt buildup to fund growth as governments retreat. Everything about that is wrong....

Bill Mitchell – billy blog
Precarious private balance sheets driven by fiscal austerity is the problem
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Jan Kregel — Minskyan Reflections on the Ides of September

Good article on Minsky from an MMT understanding.

Multiplier Effect
Minskyan Reflections on the Ides of SeptemberJan Kregel | director of research at the Levy Economics Institute, director of the Levy Institute master’s program in economic theory and policy, head of the Institute’s Monetary Policy and Financial Structure program, and professor of development finance at Tallinn University of Technology

Matt Stoller — The Bailouts for the Rich Are Why America Is So Screwed Right Now

Comparison of the way Bush and Obama handled the 2008 crisis with now Hoover and Roosevelt handled the crisis that led to the Great Depression.

Vice
The Bailouts for the Rich Are Why America Is So Screwed Right Now

Matt Stoller

Matt Taibbi — Ten Years After the Crash, We’ve Learned Nothing

In Too Big To Fail, the “superstar” chief of Goldman, Lloyd Blankfein, along with “smart” Jamie Dimon of Chase, “fighter” John Mack of Morgan Stanley, and other titans brokered the deal of deals, just in time to stave off a Mad Max scenario for us all.
The plan included a federal bailout of incompetent AIG, along with key mergers – Bank of America buying Merrill, Barclays swallowing the sinking hull of Lehman, etc.

With respect to the fine actors in the film, the legend is bull.

There are more accurate chronicles of the crisis period, including the just-released Financial Exposure by Elise Bean of the Senate Permanent Subcommittee on Investigations, probably the most aggressive crew of financial detectives who sifted through the rubble over the past 10 years. Bean’s account of what went on at banks like Goldman, HSBC, UBS and Washington Mutual is terrifying to read even now.
But history is written by the victors, and the banks that blew up the economy are somehow still winning the narrative. Persistent propaganda about what happened 10 years ago not only continues to warp news coverage, but contributed to a wide array of political consequences, including the election of Donald Trump.

The most persistent myths about 2008:...

I'd say that the problem is not so much nothing learned as nothing done. What was learned was buried under an avalanche of propaganda, blame-shifiting and excuse-making because it would compromise powerful interests.

Rolling Stone
Ten Years After the Crash, We’ve Learned Nothing

Matt Taibbi

Pam and Russ Martens — Meet the Secret Wall Street Group Whose Fingerprints Are All Over the 2008 Crash

Since 1999 the chief risk officers of the Wall Street banks that blew themselves up in 2008 because of reckless and irresponsible risk practices have been meeting in secret and calling themselves the Counterparty Risk Management Policy Group (CRMPG). Their plan was to periodically release erudite-sounding reports to regulators suggesting that Wall Street could police itself under a set of “Guiding Principles” in order to perpetuate its off balance sheet debt bombs, unregulated OTC derivatives and a self-regulation regime.

The group was led by former New York Fed President E. Gerald Corrigan who then moved on to a lucrative career at Goldman Sachs.

Representatives from banks like Lehman Brothers, Citigroup, Bear Stearns and Merrill Lynch sat on key committees of the Group and helped to formulate the “Guiding Principles” for Wall Street. Lehman Brothers filed bankruptcy on September 15, 2008 – just five weeks after a report from the group on managing risk was released. One day before the Lehman collapse, Merrill Lynch had collapsed into the arms of Bank of America. In March of that year, Bear Stearns had already collapsed into the arms of JPMorgan Chase with a generous financial assist from the Fed. In the same year, Citigroup became insolvent and received the largest taxpayer bailout in U.S. history.

Notwithstanding the hubris of these risk managers lecturing others on how to contain risk while their own institutions are in the process of an epic collapse because of negligently managed risk, the Federal Reserve actually deferred to this group at the peak of the crisis in 2008....

Wall Street On Parade
Meet the Secret Wall Street Group Whose Fingerprints Are All Over the 2008 Crash
Pam Martens and Russ Martens

David Glasner — How not to Win Friends and Influence People

Some history, some economics, some politics and some ideology. Covers a lot of ground.

Uneasy Money
How not to Win Friends and Influence People
David Glasner | Economist at the Federal Trade Commission

David Dayen — Greenspan Imagines Better, Alternate Universe in Which Greenspan Was Not Fed Chair

Alan Greenspan, the policy failure whose tenure at the Federal Reserve helped create the conditions for the largest financial crisis in nearly a century, was inexplicably given a major newspaper platform on Monday to opine about regulation, which he ideologically abhors.

So it came as a surprise to read the second paragraph of his Financial Times op-ed, wishfully describing an alternative history of 2008, if only there had been robust regulation.

“What the 2008 crisis exposed was a fragile underpinning of a highly leveraged financial system,” Greenspan writes. “Had bank capital been adequate and fraud statutes been more vigorously enforced, the crisis would very likely have been a financial episode of only passing consequence.”

Greenspan must have temporarily forgotten that he had the power to accomplish both of these priorities as Fed chair.

Before the Consumer Financial Protection Bureau, the Fed had primary responsibility over consumer protection, including rule-writing, supervision, and prohibition of unfair and deceptive practices. They even were charged with resolving consumer complaints.

Greenspan famously did none of this during the inflating of the housing bubble from 2002 to 2006, instead extolling the virtues of adjustable-rate loans and mortgage securitization, even as fellow Fed governors and the FBI publicly warned about looming fraud. The responsibility for vigorously enforcing fraud statutes, then, fell to Greenspan, and he ignored it.…

The wizard behind the veil has no clothes.

The Intercept
Greenspan Imagines Better, Alternate Universe in Which Greenspan Was Not Fed Chair
David Dayen

Scott Sumner — The Wittgenstein test

SS omits key alternatives:

1) what if the fiscal authority had not let demand collapse

2) what if the chief regulator had acted as such and the regulatory authority had acted according to existing law and the warning of the Federal Bureau of Investigation in 2004?

But otherwise an interesting post.

EconLog
The Wittgenstein test

Scott Sumner