The Bailout Saved Us From a Second Great Depression and An Invasion From Mars

September 14, 2018

Yep, Catherine Rampell is touting the heroics of the bailout gang in saving us from a second Great Depression in her Washington Post column. She notes the anger directed against this gang on both the left and right and that people suspect their motives. (For those keeping score, the initial trio was Ben Bernanke, who is getting well over $1 million a year in consulting contracts with financial firms, Timothy Geithner, who is likely getting multiple millions as a top exec at a PE company, and Henry Paulson who pocketed hundreds of millions as CEO of Goldman Sachs in the bubble years.)

Anyhow, Rampell never tells us how letting the markets work their magic on the Wall Street bank would have prevented us from passing a really big stimulus in 2009 (or 2010, or 2011 etc.), but I suppose the aluminum foil hat set takes this as an article of faith. Her one piece of evidence is the comparison with Europe, which we are told was meaner to the banks.

I’m not sure that Europe was necessarily meaner to the banks (after all, Deutsche Bank is still in business), but it clearly did have more contractionary fiscal and monetary policy. The European Central Bank raised rates in 2010 to head off the risk of inflation (seriously) and kept Italy, Spain, and Greece in perpetual crisis until it got new leadership at the end of 2011. The European Commission demanded austerity from the crisis countries and even non-crisis countries like France.

The predicted and actual result of these policies was extremely weak growth. It is not clear how the story would be any different if the Europeans had been nicer to the bankers.


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