In what is a stunning turn of events, the three Firefighters from the crisis of 2008 have published a mea culpa where they succinctly connect their unfortunate actions to the triumph of populism and the election of Donald Trump a short eight years later.
Firefighters aside, nobody escapes criticism here, from (i) FDR, who redlined black America out of the New Deal, to (ii) Clinton, who completely deregulated derivatives and slashed the capital gains tax to 20% (indeed, setting it to zero for one’s primary residence), to (iii) the deductibility of interest expense from some of the planet’s highest corporate income taxes, rendering the unleveraged CEO suicidal or (iv) the Greenspan Fed’s permanent policy of standing behind the value of assets in one way or another, all together conspiring with some sixty years of post-war prosperity to concentrate immense wealth in the hands of a narrow minority of white, hyper-leveraged, urban baby boomers.
It all came to a head in 2008, when it became clear that this minority (i) outright and (ii) via its pension plans and mutual fund holdings had successfully contracted to own the rights to all existing assets, to say nothing of the rights to the future sweat of all other Americans and at least a couple yet-unborn generations, naturally also packaged into tradable assets.
Not only that, via trading with one another, these boomers had “marked” these holdings at prices that the rest of the world, to say nothing of the unborn, could no longer afford to pay from its daily earnings. The only vulnerability to the system was that it was held together by leverage and the leverage was a monster that needed to be fed by increasingly higher valuations in these contracts.
“The fundamental instability of capitalism is upward,” the firefighters note wistfully, but matters conspired in 2008 to momentarily halt this ascent. And when this monster is not going up, it goes down. So down it went.
Fatefully, the firefighters admit, rather than do the right thing and wipe out the bankrupt owners, inviting the rest of America and the world back into participation in the capitalist economy, the easier choice was made:
In a stunning array of four-letter programs, trillions and trillions of government money was injected back into the system (with particular care taken to get the government out of the scam before it explodes again) and all property was placed even further beyond the reach of the average American, making the owners whole and fast-forwarding the country to its first proper existential crisis since the Civil War.
The book comes out just as we’re about to crash again, and the authors warn that (in a replay of the 1921 – 1929 episode) this time round there’s probably nothing we can do to save the white, urban baby boomers, because, well, because they will all die very soon from natural causes.
------ > WELL, NOT QUITE
(for the avoidance of doubt, the above review is my attempt at parody)
In reality, what we have here is the “official” blow-by-blow account of the heroic, selfless fight the three Firefighters waged with one hand tied behind their back as they fought to prevent a re-run of the Great Depression. It all ends well. Not only was the worst outcome prevented, but the US has done better than any other major economy since 2008, with the economy enjoying its longest recovery ever and unemployment hitting some unprecedented lows.
What’s not to like?
Quite a bit, it turns out.
Let’s start with Paulson. Paulson is deeply unhappy that the “canonical” book about the 2008 crisis, that written by Blinder, blames the crash on what is perceived to be Paulson’s decision to allow Lehman to fail.
The book makes it clear that Lehman was a symptom of a crisis that had been going for a while, not a cause. Somebody was bound to go down, because the Firefighters did not have the authority to intervene. Somebody big. If it was not Lehman then it would be somebody else. There was going to be a big failure. And only after the big failure could the Firefighters get the authority to go ask for the necessary tools to deal with the crisis.
So that’s Paulson sorted, he was a good guy after all.
The blight on selfless public servant Tim Geithner has always been that he was the man who made the choice to protect the banks rather than the homeowners. Not one, but several books have come out by eyewitnesses who were there in the meetings when he talked about “foaming the runway” for the endangered banks with sundry programs to slow down the defaults. My favorite is probably by SIGTARP Neil Barofsky.
That is a total misunderstanding, it turns out. The Firefighters explain that herculean efforts were made to protect homeowners. We are made to wait until page 103 out of 136, but there comes QE and brings those mortgage rates right down. Oh, and make no mistake, Timmy talks about “foaming the runway” in multiple contexts, it’s just something he likes to say a lot. For example on page 48 you can witness “foaming the runway” in the form of injecting liquidity into the markets after Bear Sterns goes down. It comes up more. It’s just something he says a lot.
So that’s Geithner sorted, he was a good guy after all.
And that leaves us with Bernanke. We all know what he stands accused of. Yes, fine, he got rather inventive during the crisis, he did some krazy stuff even FDR would not dare do in his most improvisational breakfast-in-bed times, but that saved the day.
What people want to know is why he kept rates down for so long after the crisis. Even his biggest fans do acknowledge that a bad part of his legacy is that some very well-connected people took advantage of the permanently low rates the homeowners were meant to benefit from and made for themselves some fortunes like we have not seen since the twenties.
Whisper it, folks, QE bred inequality.
Ah, no it didn’t! Inequality, the Firefighters will have you know, had been increasing for at least a decade prior to the crisis. This was masked by the fact that there was growth. But don’t go thinking it was caused by the response to the crisis. It had been long in the making. Charts are in the back that prove this, in case the relevant prose is not good enough for you.
So there you have it. Something for everyone. In the words of Winston Churchill, “I know history will be kind to me, because I intend to write it.”
But what we have here is something much more grand than that.
It’s much more akin to Chairman Mao’s Little Red book.
Or perhaps Colonel Ghadaffi’s Little Green Book.
I propose we call it “the Little Brown Book.”
A five-star effort!
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Top reviews from the United States
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- Reviewed in the United States on July 27, 2019
- Reviewed in the United States on December 7, 2019
- Reviewed in the United States on June 5, 2024
- Reviewed in the United States on September 2, 2019
Top reviews from other countries
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Juan F.Reviewed in Mexico on January 23, 2022
De primera mano sobre la crisis financiera 2008
- Francisco Jose Falcão ParacamposReviewed in Brazil on November 30, 2021
Conciso, real e um visão lúcida dos dilemas do nosso tempo
-
Simon RotelliReviewed in Italy on December 2, 2019
La cronaca scritta dai protagonisti, impossibile non leggerla!
- Serghiou ConstReviewed in the United Kingdom on August 22, 2019
Reflecting on the 2008 crisis ten years after its occurrence
