Ten years later, they still have the wrong perspective on the 2008 crisis

BEN S. BERNANKE, TIMOTHY F. GEITHNER and HENRY M. PAULSON Jr, remember the 10-yr anniversary of Lehman:

Although we and other financial regulators did not foresee the crisis, we moved aggressively to stop it.

Acting in its traditional role as lender of last resort, the Federal Reserve provided massive quantities of short-term loans to financial institutions facing runs, while cutting interest rates nearly to zero.

The Treasury Department stopped a run on money market funds by providing a backstop for investors. The Treasury also managed the takeover of the mortgage giants Fannie Mae and Freddie Mac, and worked with the Fed to try to prevent the collapse of large, systemically important financial firms.

The Federal Deposit Insurance Corporation guaranteed bank debt and protected depositors.

…The paradox of any financial crisis is that the policies necessary to stop it are always politically unpopular.

But if that unpopularity delays or prevents a strong response, the costs to the economy become greater.

We need to make sure that future generations of financial firefighters have the emergency powers they need to prevent the next fire from becoming a conflagration. We must also resist calls to eliminate safeguards as the memory of the crisis fades. For those working to keep our financial system resilient, the enemy is forgetting.

It´s quite the opposite, despite their “pleas” to the contrary, they moved aggressively to worsen it. By laser focusing on headline inflation, BB & FOMC let nominal spending growth tank. In addition, they did not foresee the crisis for the simple reason that they caused it!

The chart illustrates.


Leave a Reply

Your email address will not be published. Required fields are marked *