March 14, 2020
The Washington Post is again pushing crap about how we had to bail out the banks to prevent a second Great Depression and that we made a profit on it. And, it is attacking Bernie Sanders for not accepting this nonsense.
So let’s go through the story for the 74,567th time. Suppose we let the market work its magic on Goldman Sachs, Citigroup and the rest. All the Wall Street behemoths would have gone bankrupt. We would have instantly downsized our grossly bloated financial sector, eliminating a huge amount of waste in the economy (an efficient financial sector is a small financial sector). We also would have seen some of the richest people in the country lose their fortune due to own greed and incompetence.
As far as the second Great Depression story — yes, that is the mantra for the big money people — but try getting any of them to explain how that works out. We know the secret of getting out of a depression, it’s called “spending money.” The massive spending associated with World War II lifted us out of the first Great Depression in 1941, but if we had the political will, we could have had massive spending on things like housing and health care in 1931 and we never would have had the first Great Depression.
To be clear, the initial downturn would have been worse, as it would take time to prepare an adequate response, but we’re talking months, not a decade. The second Great Depression is a sleazy myth pushed by Wall Street and it allies to justify saving their hides.
The we made a profit story is almost as misleading. We gave a huge amount of low interest loans to the Wall Street banks and coupled that with the “no more Lehman” guarantee, meaning that we would not allow them to fail no matter how badly they messed up. (This is in Timothy Geithner’s autobiography, he is apparently very proud of it.) Under these circumstances, it was pretty much inconceivable we would not get the money lent back. We allowed the big banks to profit at the expense of everyone else.
To understand the logic, suppose the government lent $400 billion to Dean Baker’s lemonade stand at very low interest rates, and also told the financial markets that my lemonade stand would not be allowed to fail. After two or three of years of having access to very low cost money in the middle of a financial crisis, I would have gotten very rich off my lemonade stand. (If I put my money in the stock market, I could made $200 billion.)
Anyhow, Sanders is 100 percent right on the bank bailout in 2008. It would be good if the Washington Post editorial page would stop lying about it.