James Pethokoukis is ready to celebrate Free Market Day:

“At a House Financial Services Committee hearing just after Lehman Brothers filed for bankruptcy protection a year ago, the committee chairman, Barney Frank, suggested that September 15, 2008 be commemorated as Free Market Day, since Lehman was allowed to fail and free markets allowed to work. Frank then added that because AIG was bailed out the next day, “the national commitment to the free market lasted one day.”

Funny guy, the chairman — but probably not to Ben Bernanke, Hank Paulson, or Timothy Geithner. They’re the folks, obviously, who get the blame for not ginning up some way — any way — to bail out the investment bank and avoid a dangerous escalation of the financial crisis.

At last check, both Bernanke and Paulson steadfastly maintain that legally their hands were tied, thus the need for expanded authority to take over and wind down failing financial firms. If such authority had existed, Bernanke said a month after Lehman’s implosion, “we could have saved it. We would have saved it.”

While I love the idea of Free Market Day, I have to disagree with the typical post-mortem assessment of Lehman. This was not a binary choice; The Lehman decision was not an either/or situation, limited to a gladiatorial thumbs up/thumbs down.

In the real world,  there are shades of grey.

I have said — and I am still saying — that the best option would have been a more Bear Stearns approach (w/o the Fed’s $29B) — essentially, a prepackaged, orderly bankruptcy sale/liquidation. The problem with Lehman wsn’t that it was allow to suffer for its own sins –t he problem was they were allowed to do a header onto the sidewalk and splatter everyone else around. They should have been gently euthanized, their body parts sold off.

The Rescue them” or “Let them die” choice is really a false dichotomy.  When reviewing how the Fed and Treasury behaved, discussing what was done, and analyzing the possible impact of the alternatives, we need not be limited to simple Yes or No choices.

Category: Bailouts

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Free Market Day (but just a day)”

  1. CNBC Sucks says:

    There is nothing quite like celebrating “Free Market Day” by Monday morning quarterback analysis of how the US Government could have bailed out another Wall Street bank.

  2. Novemberrain says:

    Cash flows get crimped due to delinquencies, property values and foreclosures causing the global economy to limp through difficult times.

    Financing of properties is going through a huge restructuring process and the pricing should readjust to the new trends affordable by people. This transition is causing a lot of industries and job sectors to be totally wiped out.

    Read More: http://www.housingnewslive.com/us-housing-news-articles.php

  3. leftback says:

    That was the last day of the Free Markets, before the Rise of the Machines…

  4. Hard to believe a year has passed already. It is amazing how fast time passes when you are curled up in a fetal position under your desk

  5. Onlooker from Troy says:

    All these discussions about free market or not are just so irrelevant. We haven’t had any semblance of free markets in so long that nobody knows what they really are any more. Govt has been meddling in the marketplace (all too often at the behest of big business themselves) for soooo long that we’ve distorted all the “normal” relationships and reactions and incentives beyond all recognition. All that REAL businesses (mostly quite small) want is a fair and level playing field without govt picking winners and inserting their own judgments about what is good and bad and thus what should be favored with tax subsidies, etc. The list is long and mind numbing.

    And so many of the supposed “free marketers” around these days are nothing of the sort. All they are looking for is to gain political advantage for their industry/company at the expense of others. And they will often throw out some obligatory B.S. about small biz; but they have no interest in small biz succeeding. That would be a threat to them.

    So really, if anybody brings up some false argument about the free market these days they need to be reminded of this. Same as it ever was; for oh so very long.

  6. Marcus Aurelius says:

    leftback:

    . . . before they stuck wires in our necks and hooked us into the power supply for the Matrix . . .

    Onlooker from Troy:

    Longer than most of us have been alive:

    http://en.wikipedia.org/wiki/War_is_a_Racket

    Good ol’ Smedley Butler, just a’tellin’ it like it is.

  7. Mannwich says:

    Barry: Did Jimmy P. ever pay up on losing the recession bet (and losing quite badly, I might) with you?

  8. ToNYC says:

    Since you know the score as well as the swells on the East End, including the difficulty hearing your guests at table in Savannah’s, why not be focusing on the big picture? Government out now, no TBTF right now, the every minute floating through the interdealer desk shell game for daily CDS robbery. Claw back of AIG / GS 13 Billion dollar robbery/ profit. Start today to make it real,and leave something for the children, you wonderfully successful boomers and your Ferraris. I’ve driven my share, the carbureted models only, and good as they handle, the shift gate sucks!
    Keep up the good work, Barry.

  9. CNBC Sucks says:

    Ritholtz, is James Pethokoukis really buddies with my new busty online pal Megan Carpentier? If so, I think the self-proclaimed Feminazi Megan is a little more right-wing than she would like to admit.

    I must say that I am more than a little underwhelmed with Fantasy Football. As an obsessive-compulsive control freak, I like to manage my span of control, and other than managing your roster and setting starting lineups, you have no control. I don’t know why I was expecting it to be a little like Madden. :D

    Free markets do not exist in this country. My Republican Party remains in control, and Serena Williams and Kanye West are doing a better job than Rush Limbaugh consolidating their power.

    I am going back to Ritholtz retirement and focusing on being fashion-forward.

  10. DeDude says:

    I agree, there are many different ways of rescuing. I know you advocated they should go Swedish on the bastards, and I wish that had happened. What Paulson ended up doing was wrong and now it will be very costly to undo it (not to talk about politically impossible). To many blue dog “democrats” afraid of what Wall Streets little media labdogs will do to them if they did what is right rather than what will keep them safe.

  11. constantnormal says:

    It will be instructive to see exactly how the Japanese turn their descent around. I hope I live to see that.

  12. Mannwich says:

    Get ready for “Perp Walk Day”. It’s coming. That’s when our banking criminals will pull the plug and crash the market again in a hissy extortion fit to the world.

    http://www.zerohedge.com/article/cuomo-charges-against-bofa-executives-coming

  13. constantnormal says:

    And in deference to leftback’s insightful analogy, I think we should call it “Judgement Day” instead of Free Market Day”. “Free Market Day” brings to mind so many other oxymorons … like “Change we can believe in”.

  14. Intuition says:

    Americans are only capable of discussing either/or alternatives. We can only understand the world as “us” vs. “them”. It’s a big part of why we’re doomed.

  15. Pat G. says:

    “Free Market Day” ? (wink, wink) LOL When, if ever, has there been no governmental intervention in the markets? That’s a joke, right? Next it’ll be Trustworthy Bankers Day or Responsible Representative Day. I think you get the hint…

  16. HarryWanger says:

    Of course the Lehman collapse anniversary brings out all old timers with their input. Let’s look at economist Stiglitz:

    “Stiglitz says banking problems are now bigger than pre-Lehman,” says the Bloomberg report.”

    Bears/doomers/deniers are always looking for the one guy to support their viewpoint. No matter how many state the opposite.

    Of course there are 50 other economists who say differently. BTW, new market highs, kids. Stop denying and start buying!

  17. Neil C Denver says:

    Just as the “Rescue them” or “Let them die” choice is a false dichotomy, the mantra “Too big to fail” is also false.

    I believe that in the case of most ultra large organizations, be they government, private corporationsor even religions, the true mantra should be “Too Large to Succeed”.

  18. yosull says:

    I agree with Barry that an orderly liquidation would have been best.

    On a related note, it’s amazing how we never hear of CDS anymore. History will show that the toothless SEC sat by while HF’s gamed the system — buy “naked” CDS + puts while planting rumors.

    Sad really.