|Copyright:||(c) 2011 Foundation for Economic Education, Incorporated|
Too Big to Fail: The Inside Story of
Books about the 2008 financial crisis keep coming, and
The book is somewhat bloated, but the tale is compelling. It starts as
From a huge cast of characters, one man emerges as a tragic figure – Lehman chief executive Richard FuId. He became obsessed with short sellers (traders who borrow and sell shares to profit from a future price decline), blaming them for spreading malicious rumors about Lehman instead of confronting the bank’s real weakness. That was one in a series of dreadful mistakes. With Fuld’s backing, Lehman president
Sorkin recounts Lehman’s destruction, which occurred despite Fuld’s increasingly frantic efforts to raise capital or sell the company.
Mack managed to save
Another bad shotgun marriage was arranged by
These events raise the question of why government agents can dispose of other people’s property. They certainly don’t seem to worry about preserving the value of businesses or reducing taxpayer liability.
What’s the lesson in this? Unfortunately, Sorkin doesn’t make the big picture clear. The boom-and-bust happened because the Fed opened the floodgates to easy money. That’s what got everybody, from the second-mortgaged homeowner to
They might avoid fueling bubbles, but let’s leave that aside, since Sorkin doesn’t dig that deep. He describes interventions notable, among other things, for their sheer arbitrariness. The Fed and Treasury backstopped
Our financial system has suffered tremendously as a result of capricious interventions by government officials who themselves never bear any costs from the adverse effects of their decisions. If anything, they benefit. Though the entire boom-bust cycle provides evidence that government agencies, from the Fed on down, should have far less discretion, the massive financial regulation law passed this year rewards them with greater powers and wider room to do whatever they want. We should be afraid of the economic and social damage their arbitrary actions will wreak in the future.
Chidem Kurdas (firstname.lastname@example.org) is a financial writer in