Recently, I was subjected to the unpleasant experience of watching the press fawn over a bunch of self-satisfied celebrities who contribute little or nothing to society. No, I’m not talking about the interminable Oscars coverage this past week. I’m talking about the reaction to the Federal Reserve meeting minutes from the 2008 financial crisis, which were released two weeks ago.
In the popular press–even at the reliably liberal New York Times–it has become conventional wisdom that the biggest mistake of that era wasn’t bailing out the most corrupt and incompetent firms on Wall Street with billions of dollars in taxpayer money. The biggest mistake was not making the bailouts big enough.
The Times report on the release of the minutes is particularly hard to stomach. Its author is clearly shocked that, in the days leading up to the collapse of Lehman Brothers, Fed Chairman Ben Bernanke did not make it his number one priority to hurl more billions at the troubled bank:
[I]n the months before Lehman’s collapse, Fed officials in the Open Market Committee meetings did not voice concerns that Lehman was close to failing or posed a great danger to the wider system.
The piece also quotes the French managing director of the IMF, Cristine Lagarde calling the decision to let Legman go under “a genuine error” and positively recalls the taxpayer-funded rescues of Bear Stearns and AIG. There isn’t a single word in the article that contradicts this glowing portrayal of the bailouts. Its entire focus is on how badly the Fed and then-Treasury Secretary Henry Paulson screwed up by not shoveling public money into Lehman.
The truth, of course, is a lot more complicated. Nobody knows what would have happened if Washington had taken a harder line toward Wall Street–including the nationalization of Citibank and Bank of America, or letting AIG fail. But that didn’t happen. Without being asked, America’s taxpayers were obligated to prop up the stocks and bonds of numerous financial institutions. As far as the general public goes–ie: “Main Street”–the benefits of those interventions are not nearly as clear as the Times and every other mainstream publication makes them out to be. For Wall Street however, those benefits have clearly been enormous. It not only got away with wrecking the financial system–and making massive profits in the process-it’s managed to commandeer the way we discuss the bailouts as a society. This is a clear case of history being “written by the victors,” but I’m afraid it’s going to lead to history repeating itself. We’re all going lose if that happens.