An opinion piece by John H. Cochrane and Luigi Zingles in the Wall Street Journal includes a graph titled When Concern turned to Panic
This graph illustrates dramatically the panic produced by the fire in a crowded theater outcries of then Secretary of Treasury Paulson and Fed Chairman Ben Bernanke. I show it here to reinforce my contention that the recession is a byproduct of panic, and that this panic was clearly triggered by these two senior government officials. As in all panic situations others pile on, and the panic spreads.
See my posts of:
Sept. 17, Mass Delusions and Bigger Delusions
Sept. 17, Bubbles and Panics
Sept. 20, Financial Crisis Explained
Sept. 22, The Politics of Crisis
Sept. 24, The Herd in Crisis
Sept. 24, Light Shining Through?
Nov. 12, Government Money Riot
Nov. 22, A Stimulus Plan That Might Actually Work
Nov. 25, The Money Riot Continues
Jan. 9, Bent Reality Produces Fake Crisis
Jan. 12, $700 Billion Money Riot
Jan. 20, Recession or Money Riot Panic?
March 25, What Depression? We’re Being Lied To
May 6, Stimulus Fraud & Lies
Furthermore, this recession was never an impending “second great depression” as many economists, politicians and pundits proclaimed. See Allan Meltzer’s opinion piece and his chart reproduced below:
So the panic was caused by government officials and inflated by politicians who saw it as an opportunity to expand government.
The implications of all the above are:
1) The recovery will be driven by native forces in the capitalist system, as all recoveries have been.
2) The Obama administration tries to take credit for either avoiding a new depression or for the recovery. That’s absolute bunk.
4) The “stimulus” was a waste of money.
5) TARP was most likely completely unnecessary and again, wasteful.
6) Government habitually lies.
The Federal Government has done immense economic damage in the past 9 months by nationalizing banks, auto manufacturers, and the mortgage industry. The populist push to pile additional regulations upon what is already the most regulated industry in America, Finance, is insane and will cause additional damage. Why should anyone think that government regulators that were warned in detail about the Bernie Madoff fraud, but did nothing, would behave any more effectively if given broader responsibilities? What makes anyone think that a government agency, all of which were amply warned yet blind to the Fannie and Freddie frauds would have the foresight and guts to head off the bubble of credit default swaps that sank Lehman and got the Federal Government to nationalize AIG.
The only discipline that works is the fear of failure. So what would have happened if AIG had to declare bankruptcy and all those credit default swaps became worthless? It would have chastened the banks, such as Salomon Brothers which traded in them. Some might have been bankrupted. But instead, the all-wise Feds simply declared that all the bond-holders and stock owners of Merrill Lynch, Lehman Brothers, AIG, Bear Stearns, GM, Chrysler, hundreds of automobile dealers, and others would simply be screwed — their contractual and property rights nullified and their assets made worthless by government fiat. That is criminal.
In a lively economy such as ours it doesn’t take much to re-create paper-driven institutions such as investment banks. Entrepreneurs pick through the ruins and in months a dozen new entities arise out of the ashes of the fallen. The former employees of fallen Wall St. giants such as Lehman are already regenerating parts of the business where their expertise had value. Even automobile companies, with huge capital plants can be salvaged from wreckage, and would be if anything is worth saving.
It is a myth that any institution is too large or “systemic” to fail. Yes, it might hurt for a while, but free economies have amazing regenerative powers, and maintaining the discipline of potential failure is well worth the occasional stumble.