More Financial Crisis Update

The original thought I had that prompted my last post is a thought I'm not sure I really made in the post. For the sake of this discussion, I'm assuming in the most general sense that Bush's administration and Obama's administration are basically the same, and in many ways they were in how the responded to the crisis. Bush's administration started the response, Obama, by and large, continued along pretty much the same path Bush started.

But for both presidencies, the view is, generally speaking, the system was not in general broken, that the blame cannot easily be pinned on any one entity. So, the motivation behind the bailouts is to keep the economic system pre-2006 in-tact with the assumption that many of the lessons learned about real-estate and leverageing will stick and will prevent another bubble from growing any time soon.

I think this is a bit naive and we need a modified system that is more responsive to our modified world. But by and large, I think what they did was largely appropriate and probably the only response politically possible.

Moral Hazard is the thing of the past

Excellent show on frontline here that outlines the history of our financial meltdown pretty clearly. Its spine chilling, I strongly recommend every single person watch this. This is our history... someday we will talk to our kids and grandkids about how the biggest financial collapse since the Great Depression affected us personally. To not really understand what is happening around us would be tragic, so in my hopes of furthering the education and the discussion, please watch the frontline video.

By the way, its pretty clear the Republican party has no clue on what is happening to them, they've been sticking to stupid ideology throughout. Most poignantly, when they pointificated on the floor of Congress about why they couldn't support Paulson's financial bailout plan, then when it was voted no, the stock market completely tanked, and they had to come back with their tails between their legs to vote for a slightly revised version of the same bill.

Also, its interesting to see the conversion of Hank Paulson from a free market idealogue to one of the most interventionist Treasury Secretary in our history.

The video plainly outlines how his single decision to let Lehman Brothers fail was the leak in the damn that caused the complete global financial meltdown. It can be argued that if he would have bailed Lehman out similar to the way he bailed out Bear Sterns, we would be in a mess, sure, but not near the mess we're in right now. Lehman's bankruptcy single handedly took down AIG, caused the credit markets to freeze up and is now causing our government to spend trillions of dollars on a financial market bailout.

Sometimes, ideology gets in the way. You need to be flexible. Right now, the Democrats are showing a much greater flexibility.