Posts filed under “Bailouts”
“To avert panic, central banks should lend early and freely, to solvent firms, against good collateral, and at ‘high rates.’ ” -Walter Bagehot, Lombard Street
Former U.S. Treasury Secretary Timothy Geithner has been promoting his new book, “Stress Test: Reflections on Financial Crises.” I haven’t read it, and based on what I have heard him say, I won’t. Geithner doesn’t seem to understand how the crisis came about, what alternatives existed to the bank bailouts, or the impact they had. Indeed, Geithner makes multiple claims about the bailouts, none of which survive scrutiny.
Geithner argues that the bailouts were the best response to the financial panic. The financial system needed to be protected from collapse, he says, and there were no true alternatives. If part of the rescue worked to the benefits of the “arsonists who set the original fire,” that was merely an unfortunate side effect.
Those arguments stand in stark contrast to what many critics, me included, have written about the crisis. Rather than talk my own book, “Bailout Nation,” I want to respond directly to the Geithner claims. Continues here
Big Banks Started Laundering Massive Sums of Drug Money In the 1980s … And Are Still Doing It Today. It has become mainstream news that at least some of the big banks are laundering staggering sums of drug money. See this, this, this, this, this, this and and this. But you may not know the…Read More
Every day brings multiple new scandals. At least they used to be scandals. Now they’re simply news items strained of ethical content by business journalists who see no evil, hear no evil, and speak not about evil. The Wall Street Journal, our principal U.S. financial journal ran two such stories today. The first story deals…Read More
The Liquidity Stress Ratio: Measuring Liquidity Mismatch on Banks’ Balance Sheets Dong Beom Choi and Lily Zhou This post is the fourth in a series of six Liberty Street Economics posts on liquidity issues. Liquidity transformation—funding longer-term assets with short-term liabilities—is one of the main functions that banks provide. However, this liquidity mismatch exposes banks…Read More
On Fire-Sale Externalities, TARP Was Close to Optimal Fernando Duarte and Thomas Eisenbach Liberty Street Economics April 15, 2014 This post is the third in a series of six Liberty Street Economics posts on liquidity issues. Imagine that many large and levered banks suffer heavy losses and must quickly sell assets to reduce…Read More
How Important Are Hedge Funds in a Crisis? Reint Gropp Federal Reserve Bank of San Francisco April 14, 2014 Before the 2007–09 crisis, standard risk measurement methods substantially underestimated the threat to the financial system. One reason was that these methods didn’t account for how closely commercial banks, investment banks, hedge funds,…Read More