Playing the Financial Crisis Blame Game Again

Justin Fox at Time Magazine plays the Financial Crisis Blame Game and, not surprisingly comes out with you-know-who at the top. Well, actually, "Good Times" came out on top, which is a curious selection, particularly when looking at the rest of the list which contains no other real surprises.

Here's the list (my comments are in parentheses):

1. Good Times
2. Alan Greenspan (lost to a 1970s comedy series?)
3. Twisted Regulation
4. Wall Street
5. The Homeownership Obsession (not HGTV?)
6. Too Much Money (see #2)
7. The Myth of the Rational Market (damn economists)
8. You and Me (hey, speak for yourself)
9. George W. Bush
10. Commodity Futures Modernization Act

This is not an altogether different result than the poll by the U.K.'s Times Online from last week in which it was found that the finger points across the Atlantic and, after that, to their leader of recent years, Gordon Brown.

Here's the part about The Maestro, from whom, little has been heard in recent months, at least according to the website Alan Greenspan News:

It was to smother financial panics that Congress created the Federal Reserve in 1913. During Alan Greenspan's tenure as chairman, the Fed jumped in to keep the 1987 stock-market crash, the 1998 Long-Term Capital Management scare and the 2000-01 tech-stock collapse from spiraling into something worse. But that very successful firefighting fostered the risk-ignoring attitudes that brought on a conflagration. There are some — like 2008 presidential candidate Ron Paul — who argue that the lesson here is that we'd be better off without the Fed. A more palatable interpretation is that if the Fed is going to step in to prevent panics, it needs to do more to deflate the bubbles that inevitably precede those panics. Fed policy over the past quarter-century has been asymmetrical: it bailed institutions out of trouble but did ever less to restrain them during fulsome times. That has to change.

There are handy links to related lists at the bottom of each of the ten blamees, all of which is likely to make readers a bit depressed.

To improve the overall experience, consider playing this Time Warp ringtone from The Rocky Horror Picture Show (right-click, open in new tab, then hit the big red play button).

Comments

[Tom Armistead:]

The pattern was that the Fed ignored systemic risk until a crisis occurred, at which point it defused the immediate problem and continued to ignore systemic risk, whether that took the form of excessive liquidity, leverage, bubbles, or CDS proliferation.

What happened this time is the Fed failed to defuse Lehman.

Geithner's mandatory stress test for big banks is the start of a new method of regulation which will address systemic risk.

Feb 12 08:43 AM

[rmenton:]

I completely agree with Tom A. Systemic risk was at the heart of the matter. What is the point of having monetary policy and regulators, and not monitoring/responding. If the words "irrational exuberance" could have elicited such a response, why not a concerted effort on the part of the Fed and Treasury, SEC and FDIC, to carry out basic functions of oversight?

Feb 12 08:52 AM

[Michael Shu...:]

This began in a three month period in 1999 when a) Goldman Sachs went public b) Glass Steagall was repealed and c) Greenspan printed money fearful of a Y2K problem in the banking sector. In a few months CEOs and board members of all the other banks said "Wow! Look at the profits and return on equity at Goldman, let's do that." And there was no regulatory infrastructure to prevent them from using FDIC insured deposits to expand leverage from 12 to 1 to more than 30 to 1 and try to emulate Goldman. And money was cheap in part because of Greendspan and in part because China entered the WTO in 2001 and combined their surpluses Japan's to reduce the cost of money even more. Problem is, there was and is only one Goldman when it comes to risk management -- and in modern markets, the best risk manager changes the game for all other players, making their investments riskier, a zero sum game. The rest is history, with more to be written

Feb 12 08:55 AM

[waf76:]

Our choices are grim going forward; do we let the smart greedy CEO's lead us or the stupid yet powerful gov't? Ron Paul is right when he says he wants to abolish the Fed. He proposes this each year but he's looked at as an outcast. Each dollar the Fed prints automatically gets circulated with interest attached to it so the economy grows off this debt. So essentially we are in debt on day 1. We create money out of the thin air. Credit is given, margin accounts opened, interest is charged. This type of system is prone to bubbles and unsustainable in the long run. We need an economy founded on real value. Yes it is true our returns will not be as great but the returns of the past were merely inflated by the smart and savvy CEOs who sucked the money out of the economy. Economies built on savings will win out. Being highly leveraged is a recipe for disaster.

Feb 12 10:03 AM

[Socialism c...:]

1. Socialism --> government intrusion in housing, Fannie, Freddie.
2. The Democrats who enable Socialism -- especially Barney Frank, Chris Dodd, Nancy Pelosi, Baraq Obama, Rahm Emmanuel, and the rest on the list of Largest Recipients of Money From Fannie Mae.
2. Hedonist Americans Living the "High Life"
3. Excessive taxation at all levels...every confiscatory tax is anathema to American founding principles, and an impediment to freedom and prosperity.
4. Entitlement-minded citizenry
5. Illegal immigrants
6. Excessive legal climate in America
7. Too much reverence for academics and economists who overly complicate matters. It's simple: freedom = growth, Marxism = death.

Feb 12 12:27 PM

[mr freddo:]

My list would put Greenspan on top. I agree with the author that the Fed's easy money policy after the dot com bust was a key factor in creating the real estate bubble and the credit bubble. With money so cheap, wall street firms pushed their leverage to unprecedented levels to take advantage. (with the help of the SEC.)

Second on the list would be George W. He cut taxes for the rich and started running deficits when he should have been balancing the budget. That just created more investment dollars to chase overinflated assets and left us 5 trillion in the hole for his 8 years in office. And that was before we even got to the crisis at hand.

Third, and that's it for my list, is Wall Street and the banks, who forgot the old garbage in, garbage out rule for any product. You can't go out and collect a bunch of dog poop sub prime mortgages, put them together, and come out with diamonds on the other end.

Okay, one more. Fourth would be the ratings agencies that should have stood up to this nonsense right away but didn't. Triple A rated? Give me a break!

Feb 12 12:39 PM

[Harry Tuttle:]

How about a spot for Clinton/Rubin/Summers who repealed Glass-Steagal?

Feb 12 02:28 PM

[Harry Tuttle:]

I have one more, lets blame the Chinese for selling us all those cheap things while buying so many t-bills.

Feb 12 02:30 PM

[Mr. Ed, Jr.:]

That's a Bingo.


On Feb 12 12:27 PM Socialism cannot compete! wrote:

> 1. Socialism --> government intrusion in housing, Fannie, Freddie.
>
> 2. The Democrats who enable Socialism -- especially Barney Frank,
> Chris Dodd, Nancy Pelosi, Baraq Obama, Rahm Emmanuel, and the rest
> on the list of Largest Recipients of Money From Fannie Mae.
> 2. Hedonist Americans Living the "High Life"
> 3. Excessive taxation at all levels...every confiscatory tax is anathema
> to American founding principles, and an impediment to freedom and
> prosperity.
> 4. Entitlement-minded citizenry
> 5. Illegal immigrants
> 6. Excessive legal climate in America
> 7. Too much reverence for academics and economists who overly complicate
> matters. It's simple: freedom = growth, Marxism = death.

Feb 12 03:16 PM

[Jason Rines...:]

With all of the great political insights, I had better see you running in 2012 for Congress or I am going to ring your office and ream you out.


On Feb 12 12:27 PM Socialism cannot compete! wrote:

> 1. Socialism --> government intrusion in housing, Fannie, Freddie.
>
> 2. The Democrats who enable Socialism -- especially Barney Frank,
> Chris Dodd, Nancy Pelosi, Baraq Obama, Rahm Emmanuel, and the rest
> on the list of Largest Recipients of Money From Fannie Mae.
> 2. Hedonist Americans Living the "High Life"
> 3. Excessive taxation at all levels...every confiscatory tax is anathema
> to American founding principles, and an impediment to freedom and
> prosperity.
> 4. Entitlement-minded citizenry
> 5. Illegal immigrants
> 6. Excessive legal climate in America
> 7. Too much reverence for academics and economists who overly complicate
> matters. It's simple: freedom = growth, Marxism = death.

Feb 12 04:53 PM

[tinman:]

It's like agreeing to let your teenager have a party while you and the wife are on vacation. Congress and SEC have long been too ignorant of financial matters to provide adult supervision while the greedy kids looted corporations. And we the people have demanded nothing but platitudes and easy answers from these representatives.

The fault, dear Brutus, lies not with the stars but with ourselves.

Feb 12 08:37 PM

[Moon Kil Woong:]

100% agree we built systemic risk when we allow financial institutions to take extraordinary risk, shield them from accounting rules, and bail them out of every fiasco known to man without punishment.

When you are a kid you depend on your parents. When you are an adult depend on the government. When you're a bank depend on the Fed. LOL! What's wrong with this picture?

Feb 12 09:06 PM

[biomedlives:]

The current crisis and the earlier S&L crisis both involved institutions with government-insured deposits. I believe we should consider getting rid of deposit insurance, which has a definite socialist tinge.


On Feb 12 12:27 PM Socialism cannot compete! wrote:

> 1. Socialism --> government intrusion in housing, Fannie, Freddie.
>
> 2. The Democrats who enable Socialism -- especially Barney Frank,
> Chris Dodd, Nancy Pelosi, Baraq Obama, Rahm Emmanuel, and the rest
> on the list of Largest Recipients of Money From Fannie Mae.
> 2. Hedonist Americans Living the "High Life"
> 3. Excessive taxation at all levels...every confiscatory tax is anathema
> to American founding principles, and an impediment to freedom and
> prosperity.
> 4. Entitlement-minded citizenry
> 5. Illegal immigrants
> 6. Excessive legal climate in America
> 7. Too much reverence for academics and economists who overly complicate
> matters. It's simple: freedom = growth, Marxism = death.

Feb 13 09:35 AM

[User 356460:]

What about the damage nafta has done to our economy?

Feb 13 10:01 AM

[axelrod608:]

When "Bubbles" got his medal for blowing the biggest bubbles, who'da thunk he'd blown up the whole freakin' economy ?

Feb 13 02:59 PM

[henarl:]

The Fed has been pretty good at playing whack-a mole in the past but now the mole has grown into a grizzly bear and the Fed is still only armed with a willow branch. Afraid the bear is going to win this one.

Feb 13 03:50 PM

[henarl:]

Surprised that Paulson doesn't rate a spot in the top ten.

Feb 13 03:51 PM

[sether:]

Another incoherent rant from "Socialism cannot compete!". Is that handle a joke? Socialism DOESN'T compete. That's the point. Certain things are not subject to market forces. If you take a look, there are plenty of examples in this country already; infrastructure for example. You want private highways? Private water? Private military? Other things SHOULD NOT be subject to market forces, like heath, safety and education. Boutique heathcare and education will always be available for those who want / can afford it, but a quality baseline should be provided for everyone.
You are not 'Free' if a serious illness can bankrupt you. You are not 'Free' if you are poorly educated.
Do yourself a favor and turn off the FOX and Limbaugh. They are just pimps, paid by the conservative corporatist plutocrats to turn-out mindless little whores like you to spead their AIDS-like propaganda. We need a vaccine to cure folks like you, and protect the rest of us from your disease.


On Feb 12 12:27 PM Socialism cannot compete! wrote:

> 1. Socialism --> government intrusion in housing, Fannie, Freddie.
>
> 2. The Democrats who enable Socialism -- especially Barney Frank,
> Chris Dodd, Nancy Pelosi, Baraq Obama, Rahm Emmanuel, and the rest
> on the list of Largest Recipients of Money From Fannie Mae.
> 2. Hedonist Americans Living the "High Life"
> 3. Excessive taxation at all levels...every confiscatory tax is anathema
> to American founding principles, and an impediment to freedom and
> prosperity.
> 4. Entitlement-minded citizenry
> 5. Illegal immigrants
> 6. Excessive legal climate in America
> 7. Too much reverence for academics and economists who overly complicate
> matters. It's simple: freedom = growth, Marxism = death.

Feb 16 01:57 PM

[User 357469:]

Sure, so the banks and government can screw the people more than they are already being screwed.

On Feb 13 09:35 AM biomedlives wrote:

> The current crisis and the earlier S&L crisis both involved institutions
> with government-insured deposits. I believe we should consider getting
> rid of deposit insurance, which has a definite socialist tinge.<br/>

Mar 28 02:50 PM