One year ago today, Lehman Brothers was allowed to file bankruptcy. This will go down as the primary flaw in Bernanke's othrewise impeccable resume. Political will basically forced the Fed and Paulson "to let the markets work." Within 24 hours of the Lehman collapse, FannieMae, FreddieMac, Wachovia, and AIG were completely insolvent. Clearly, in hindsight, an uber-regulator should have had the authority to step in and prevent Lehman from failing.
Let's look at the USA's tab from this bad policy:
Lehman Brothers......$766 Billion bankruptcy
AIG......$250 Billion in direct cash infusions
FannieMae....$250 Billion in cash, $1 trillion in garuantees
FreddieMac... " " " " " "
American citizens: A tariff implementing president and 10% unemployment
The costs are way too high!!! The Fed needs the power to sieze systemically important companies, just like the FDIC has the power to sieze banks.
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ReplyDeleteWhat would the Fed do with a company it seized? Settle the debt and/or sell it off? Isn't that basically what bankruptcy is? Perhaps it would be as good to regulate the companies so that they can fail without destroying the economy?
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