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marmar

(77,053 posts) Sat Sep 21, 2013, 07:53 AM Sep 2013

“Lessons” that Wall Street, Treasury, and White House Need You to Believe About the Lehman Collapse

Robert Prasch: The “Lessons” that Wall Street, Treasury, and the White House Need You to Believe About the Lehman Collapse
By Robert E. Prasch, Department of Economics, Middlebury College. Cross posted from New Economic Perspectives

Five long years have passed since the demise of the once venerable firm of Lehman Brothers. To mark the occasion, Wall Street, the United States Treasury Department, the White House, and their several political proxies and spokespersons have taken to the mass media to instruct the public in the “lessons” to be drawn from the financial crisis of 2007-09. Regrettably, we are witnessing the propagation of several self-serving falsehoods in the hope that the public can be induced to embrace them now that the immediacy of the events in question is in the past. Some of the lessons are so flagrantly false that they demand immediate correction.

No One Saw It Coming

Of all the falsehoods being circulated, this one is in many ways the most egregious and damaging. It systemically denies the attribution of credit and thereby voice (and political power) to those who in fact did see “it” coming even as it provides blanket exoneration to those whose ignorance–or more likely–cowardice combined with self-interest prevented them from perceiving what was happening in the financial sector. Those making this latter claim can, more correctly, observe that, “no one in our close-knit circle of elites saw it coming.” Stated in this form, the statement is suggestive. Why, we might ask, was their circle exclusively made up of individuals who did not, would not, or could not, see the crisis coming? Why is it, in a nation with the diversity and talent of the United States, that all of the senior managers of our largest financial firms, and those charged with regulating them, were exclusively made up of individuals sharing the same perspective – a perspective that, I might add, was and remains so singularly and disastrously dysfunctional for the economy upon which the rest of us depend?

These are compelling questions because, as a matter of fact, many highly-informed people “did see it coming.” Indeed, by 2007 the American landscape was littered with risk managers, senior analysts, and even a few economists who “did see it coming” and who had the temerity to speak up about it. We also know that these several persons were invariably pressured to remain silent. Refusing to do so, they found themselves marginalized and their careers stalled. Not a few of them were dismissed from their positions for speaking up. Remarkably, five years after the failure of Lehman, not a single one of the many persons with an accurate assessment of what was going on has been elevated to a position of responsibility in the administration of a president who repeatedly promised the American people that he would bring about “change.” By contrast, the persons in authority who not only failed, but failed catastrophically, in their appointed roles have been retained or promoted by this administration. Am I the only one who thinks that this is a perverse outcome worthy of mention?

The Crisis was Almost Exclusively About Liquidity

Wall Street, Treasury, the White House, and the Congressional leadership of both major political parties (who came together to support the infamous bailout legislation that created TARP), desperately want you to believe that in the Fall of 2008 America’s largest and most prominent financial firms were illiquid as opposed to insolvent (for the record, insolvent financial firms have made this claim since the beginning of time). From the beginning, the story peddled by Wall Street, Treasury, and the White House is that a momentary, irrational, and essentially groundless “panic” had gripped financial markets, causing a passing, albeit catastrophic, decline in the price of otherwise good and worthy assets. As a consequence, those assets could no longer serve as collateral for the short-term lending that had become lifeblood of Wall Street financing. This perspective, one that remains unquestioned across Manhattan and Northwest Washington, was enshrined in the name given to the bailout legislation – the Troubled Asset Relief Program. Notice, these assets were described as “troubled,” not “failed,” not “garbage,” not “riddled with fraud and misrepresentation.” No, they were merely “troubled.” ..................(more)

The complete piece is at: http://www.nakedcapitalism.com/2013/09/robert-prasch-the-lessons-that-wall-street-treasury-and-the-white-house-need-you-to-believe-about-the-lehman-collapse.html#wH3BmHJTZp5o9dXY.99