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Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.

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December 20th, 2009, 8:06 am

‘Too Big to Fail’ shows how close the economy came to collapsing

THINK politicians and bankers are exaggerating when they talk about how close the U.S. financial system was to falling apart last fall?

You won’t think that after reading Andrew Ross Sorkin’s excellent new book, "Too Big to Fail."

Sorkin is a reporter and editor for The New York Times. "Too Big to Fail" is his account of the financial events of 2008.

Click here for this week’s full Business Browser column.

Permalink: http://news.fredericksburg.com/businessbrowser/2009/12/20/too-big-to-fail-shows-how-close-the-economy-came-to-collapsing/

  • lgross

    were opposed to the actions of the govt to head
    off disaster, we would have had a repeat of the
    Depression.

    I don’t know that the govt did everything right in
    it’s actions. Certainly, this is not a process where
    we have learned over time all the right answers
    but I think for us to not have acted, we would
    have had disaster.

    And those who have argued so vociferously
    against taking action are now basically arguing
    that the economy would have recovered anyhow
    without the govt actions.

    Somehow, I’m not convinced. What I’m more
    convinced of is that I’m glad these folks were not
    in charge when we had the meltdown – and I’d
    prefer to not have them in charge anyhow
    because I think they are more driven by ideology
    than common sense or good sense.

  • gramps

    “we would have had a repeat of the
    Depression.”

    Could you kindly provide your proof of that statement? I have heard this definitive statement on other occasions and I have been unable to verify the proof for myself.

  • gramps

    And, do you really, really believe that the drive behind the actions of those like Reid and Pelosi are “common or good” sense? Further, you must then believe that “ideology” is not the prime mover on the left, only the right?

    I would like to remind you that the first to propose massive federal bailouts to cure current financial woes was none other than the Bush administration. From where I sit the current administration has simply followed suit. Hence, if the “right” was ideologically driven, I suggest the left is likewise guilty.

  • lgross

    For better or worse, Mr. Bernanke’s PHD thesis
    was on the depression and it’s causes and follow
    on actions.

    But he was not alone in his beliefs about what to
    do to avert disaster.

    The Bush administration did indeed propose the
    TARP and the auto bailouts but it was this
    administration that proposed the stimulus – right?

    The right-wingers I am talking about are the
    same right wingers who were opposed to the
    TARP, to the bailouts AND the stimulus – just like
    their counterparts were back in the first
    depression.

    Like I said, I don’t know that we did everything
    right but I’m pretty convinced if we did what the
    right-wingers were saying – which was essentially –
    do nothing and let the market “correct” , we
    would have had a disaster – and on that point –
    there is more and more agreement – as attested
    to by the author alluded to in this article.

  • lgross

    more demonizing by the right-wingers. These two
    have had at best – only tangential roles in the
    TARP, bailout and stimulus – to the effect that
    they support the administration efforts.

    These two basically have supported the current
    administration – just as their Republican
    counterparts supported the Bush administration.

    There is nothing unusual or particularly nefarious
    about that despite what Beck/Hannity and
    company would have one believe.

    There is a disagreement – a partisan
    disagreement about what we should be doing to
    recover from this recession.

    There is nothing inherently “evil” about the views
    held by Reid and Pelosi – which for the most part
    - are fairly representative of many Democrats in
    both the House and Senate.

    Demonizing the House and Senate leadership is
    just plain dumb.

    In fact, it would not matter to the partisans WHO
    leads the Dems – they would be demonized the
    same way … because of their roles – not because
    who they are as people.

    I don’t particularly hew to the left, tax & spend
    folks though I’m with them on their societal
    values.

    The folks I most identify with are the fiscal
    conservative – social progressive folks – Blue Dog
    Dems and/or what the right wing calls RINO
    Republicans.

    All things the same – it is CLEAR to many
    economists that what has been done – has been
    necessary even though it causes deficit and
    inflationary problems downstream. It was the
    lesser of two evils – and regrettable but
    necessary.

    As I said. I am thankful that we did not have the
    “do-nothings” in charge and I am convinced we
    would have repeated the first depression.

    that’s my story – and I’m sticking to it…

    ;-)

  • gramps

    Okay, your proof is Mr. Bernanke’s thesis. His thesis was written about the depression of the last century and I have no doubt he has analyzed that event quite thoughtfully and perhaps even expertly.

    This current issue occured about 80 years later and all conditions are quite different, but perhaps his thesis still holds for todays events.

  • gramps

    You wrote; “The folks I most identify with are the fiscal conservative – social progressive folks -Blue Dog Dems and/or what the right wing calls RINO Republicans.

    ME TOO, believe it or not. I am just absolutely fed up with our “professional politicians” on all side of the aisle in Washington. I do not believe thay have “our” best interests at heart. In my mind, their reelection is their first and only priority other than their “ideological” positions.

  • lgross

    but in the end – a judgment call that did not have
    unanimous agreement among the economists
    but the administration had to choose a path –
    and it did.

    My view is that had they done nothing. bad stuff
    would have happened.

    Other’s, obviously don’t agree.

    but nothing inherently wrong or evil going on –
    just a major difference of opinion on policy.

  • lgross

    we agree… sort of. I think that McConnell and
    Boehner and our own Eric Cantor are BIGGER
    BOOBS than Reid and Pelosi… but I don’t try to
    demonize them…. publically….

    but I do agree… in general.. both parties are
    like Mom and Dad having a divorce and the
    voters are the kids….

    Congress – both sides – seem to be owned by
    special interests….

    so.. just fingering Pelosi and Reid seems kinda
    one-sided to me….

    like I said.. I’m glad the other side was not in
    charge when we had the meltdown because I
    think they have it wrong and if they were in
    charge.. we’d be in a major depression right now
    instead of just seriously wounded….

  • gramps

    They are all “boobs” because they get to Washington and something happens; they taste the power and the “pampering” and they forget why they are there. THAT is not how the founding fathers visualized the situation and it is why professional politics is bad for all of us.

  • lgross

    as bad as it is – and I agree – I’m not sure what we could point to in this world – as better…

    heh heh … most folks tho – think THEIR Congressmen are fine but it’s the “others” that are not.

    I also don’t think the problem is solely the Congress. It is US because the special interests not
    only lobby Congress but they spin off hundreds of ADs on TV promoting viewpoints that are – best
    characterized in my mind – as models of commercial products commercials where you are given
    not information – but propaganda designed not to inform you – but to influence you by NOT telling
    you both sides of an issue much like Tide or Green Giant is designed to sell you on THEIR product
    not the competitors.

    So.. the special interests SELL us on TV these political issues the same way that they’ve learned to
    sell us soap and green beans…

    unfortunately it “works” because the average person is not going to really spend the time
    necessary to really get to the facts…

    I think we have ourselves to blame as much as the politicians to be honest.

    it’s the system we have.. I’m not sure how it gets changed. I’m not sure, to be honest, that we all
    would even agree on how it should be changed …..

  • gramps

    Here are some thoughts:

    Regarding our elected leaders; Caeci caecos ducentes.

    Regarding the duty of our elected leaders; Uti, non abuti.

    Regarding government at all levels; Ubi dubium, ibi libertas.

    Regarding partisan politics; Ubi concordia, ibi victoria.

    Latin may be a “dead” language, but the expressions are poetic and prophetic.

    I hope all of us that wanted HC change got what they expected; I do not think I did.

  • lgross

    I’ll have to go look up the translations…

    what “change” did you expect?

    what you have to say is of interest to me because
    there are more than a few folks who feel this way
    and is reflected in the polls.

    But I’m not in major surprise of how this
    administration is proceeding…

    so what did you expect instead of what we got?

  • lgross

    Interesting article in WaPo about how wrong Bernanke was in the run-up to
    the meltdown.

    “Fed was blind to banking crisis”

    http://www.washingtonpost.com/wp-
    dyn/content/article/2009/12/20/AR2009122002580.html?hpid=topnews

    But even many of his critics think he WAS right about what to do to keep
    from sliding into a depression.

    There is a phenomena known as a “Liquidity Trap” and you can wiki it or
    just GOGGLE it but basically it describes what happens to an economy if the
    banking system takes a bad hit and the banks either go broke or they are
    so damaged that they can no longer provide credit – and the who economy
    starts to implode without credit…

    in this circumstance, lowering the Fed interest rate to stimulate the
    economy does not work because the banks existing assets are so toxic
    (bad) that they really cannot afford to loan out any more money without
    setting them selves up to fail when the bad loans come due – and they
    don’t have the money to cover the losses.

    so the banks essentially go into a no-loan mode and the economy just
    withers… without access to credit.

    To give you a couple of examples of how this affects the economy even
    locally.

    The proposed Kalahari project needs 200 million to build and they cannot
    obtain it – and have not been able to for more than a year.

    The planned HOT Lanes on I-95 needed about 400 million so they could
    start work – and that money is not available right now.

    The FEDS cannot fix this just by stimulus and bailouts – but the strategy is
    to arrest the free-fall and attempt to turn it back the other way and hoping
    that the fair meager stimulus jobs will essentially start to pump money into
    the economy and loosen up credit – which it has not done successfully to
    date and that is why the President is jawboning the banks.

    I just strongly disagree with those who think the government should not
    intervene and let the market “work”.

    This is a worldwide issue by the way – again an indication that this is not
    just a US-only problem.

    The nay-sayers point out that the deficit is going through the roof and they
    are correct but to do nothing will assure disaster – in many economists
    views.

    Once the economy recovers and starts to grow again, they’ll have to then
    work on cutting the deficit.

    That’s the plan.

    I just think the folks who say that we cannot “afford” the deficit are wrong.

    We don’t have any choice right now.

    Without the current action bailout/stimulus actions being pursued, the
    economy would crater and though it might eventually recover in a decade or
    so – there would be very serious and widespread hardship not the least of
    which would be an unemployment rate over 20%.

    so this President can’t win. If he tries to repair the economy, they hit him
    with the deficit… if he tries to provide some short-term jobs, they whack
    him with the unemployment rate and the “waste” of spending more money
    per job than makes sense (completely forgetting that not doing that results
    in NO jobs).

    I don’t pretend to understand it all but I also don’t think that what we are
    doing is a Pelosi/Reid/Obama scheme. There are a TON of very
    knowledgeable and learned people involved in implementing this policy.

    they are advising the actions to be taken. This policy has not been cooked
    up by Pelosi/Reid/Obama …. it’s the product of a team of economists
    working with folks like Bernanke and others ….

    I just think that demonizing the leadership is wrong. Those that disagree
    can and should stand their ground but I don’t think it does anyone any
    good to demonize people.

  • gramps

    my positions and views as best I know how. I have even discussed, in the past, the so-called “liquidity trap theory” espoused by Paul Krugman and others. To “dismiss” this nations vast debt is, in my view, a serious error. Further discourse between us is probably not fruitful.

    I firmly and truly believe in the principles upon which this great nation was founded. I find myself in the minority and respect the fact that the majority opinion will hold forth and move us into new and different frontiers.

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