The Sunday New York Times has a big “10 Years After” section on the crash of Lehman Brothers. (Its a collection of all the related columns from this past week).
One of those really stood out: “The Policymakers Saved the Financial System. And America Never Forgave Them.”
Its a more nuanced issue the article seems to grasp, but in a nutshell, the answer why is this: Never put the people who created a problem in charge of fixing it.
Think about it for a moment and it becomes clear.
When there is a problem in a surgery, the first surgeon never does the repair, a new surgeon with fresh eyes, and no conflicts comes in for the fix. He has no vested interest in the outcome other than the patient’s recovery. One cannot help but want to proven right, protect your own name and reputation. That is just human nature.
Geithner, Paulson and Bernanke: These were not hired guns called in to fix what was broken; they were all in positions of authority and power prior to the crisis. They did not use their offices to prevent the crisis, and at worst helped contribute to the crisis in the first place. Geithner was head of the New York Fed; Bernanke was Fed Governor (2002 to 2005), and President Bush’s Council of Economic Adviser Chair; Paulson was COO and CEO of Goldman Sachs before becoming Treasury Secretary in 2006.
Note that this is not an after the fact example of hindsight bias, but something I wrote in both Bailout Nation and here in real time.
I cannot help but think that a different crew of people tapped to rescue the economy might have created a different set of outcomes.
Consider the results of the rescue: The big banks got bigger, there is far less competition, with much more of the total assets and revenue now held by far fewer banks than pre-crisis. So too with income — much more concentrated among the top 10 and 1 and 0.1 percents than before.
It is a good rule of thumb: you get better results from a repair crew that was not involved in helping to create the damage in the first place . . .
Previously:
