Looking the Bailout Hustle

What a pleasure:  So Matt Taibbi was discussing his most recent article in Rolling Stone, “Wall Street’s Bailout Hustle” (which we discussed here).

At his blog at True Slant, he had a few very nice comments about the approach I advocated, versus the one created by Bush/Paulson/Bernanke and continued by Obama/Geithner/Bernanke.

He writes:

“My feeling on that is similar to what Barry Ritholtz (check out his site if you haven’t), the author of Bailout Nation and one of the guys I spoke with at length for this story, proposed. He said that “we should have gone Swedish on their asses.” The Swedes after a similar bubble burst in 1992 temporarily seized control of insolvent institutions, forced banks to write down losses before they got aid, and gave taxpayers a huge share in the upside of recovery. It was a tough-love approach that really worked and forcefully addressed the moral hazard issue in a way we never touched.

That’s one way we could have proceeded. But whatever we didn’t do, we can be sure that what we did do was exactly wrong. Barry pointed out the classic pronunciation of Victorian economist/journalist Walter Bagehot, who said that in a crisis, a Central Bank should lend freely to solvent institutions against good collateral, at penalty rates. We did exactly the opposite: we lent to insolvent institutions, against shit collateral, at zero percent interest. We told these guys to drink themselves sober. Total crap thinking and totally typical.”

That is way cool . . .


On the Bailout Hustle
True/Slant Feb. 19 2010

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