{"id":30549,"date":"2015-10-25T17:23:35","date_gmt":"2015-10-25T16:23:35","guid":{"rendered":"http:\/\/www.w-t-w.org\/en\/?p=30549"},"modified":"2015-10-25T17:23:35","modified_gmt":"2015-10-25T16:23:35","slug":"bernanke-on-government-backed-bank-bailouts","status":"publish","type":"post","link":"https:\/\/www.w-t-w.org\/en\/bernanke-on-government-backed-bank-bailouts\/","title":{"rendered":"Bernanke on Government-Backed Bank Bailouts"},"content":{"rendered":"

Should Central Banks Be De-Fanged?<\/p>\n

Holman W. Jenkins writes: \u00a0Ben Bernanke wishes otherwise, but his historical reputation won\u2019t rest only on his efforts to save the financial system, but on his contribution to the meltdown in the first place by letting Lehman fail.<\/p>\n

\u201cWe had little doubt a Lehman failure would massively disrupt financial markets and impose heavy costs . . . on millions of people around the world who would be hurt by its economic shockwaves. . . . I never heard anyone from the Fed or the Treasury suggest that letting Lehman fail would be anything other than a disaster, or that we should contemplate allowing the firm to fail. . . . Lehman needed to be saved. We lacked the means to do so,\u201d writes Bernanke.<\/p>\n

When Lehman weekend rolled around in September 2008 and it wasn\u2019t clear yet that even AIG would be saved, we were flummoxed. Fed intervention seemed a no-brainer, given the assumptions and priorities that have driven such decisions in the past. \u00a0The Fed worried about the \u201cend of our resources\u201d and having to face the potential collapse of WaMu<\/span>, Citigroup<\/span>, Merrill Lynch and others with \u201cno political support.\u201d<\/p>\n

Let\u2019s try a thought experiment: Suppose President Bush, Candidate Obama, Nancy Pelosi<\/span> and Harry Reid had all taken to their respective soapboxes and demanded that the Fed stop a Lehman crash. Would Mr. Bernanke have failed to bail out Lehman over\u00a0a legalism? Of course not.<\/p>\n

Maybe he and Hank Paulson were right: The highly political moment would have produced a populist backlash that would have inhibited their future rescue efforts. \u00a0It\u00a0doesn\u2019t follow that the Fed would have taken losses. Lehman, after all, was liquidated in a world in which Lehman had been allowed to fail. Second, the Fed can print money.<\/p>\n

Less spin would be useful right now for one important reason: Politicians and the public still haven\u2019t grown up about the too-big-to-fail problem. Mr. Bernanke says CEOs and shareholders won\u2019t be eager to repeat the experience of Bear Stearns, Lehman, etc. If only it were so. Creditors were largely bailed out. That means, in the quest for competitive returns, shareholders and CEOs in the future inevitably will be led to press the limits on leverage because lenders believe them implicitly government-backed.<\/p>\n

Mr. Bernanke is correct when he says the Lehman panic, not the relatively modest losses on subprime mortgages, caused the global crash. But let\u2019s spell it out. Since the Great Depression, largely due to the scholarship of people like Mr. Bernanke, investors and savers were conditioned to believe the U.S. government would not let the failure of a mere financial institution crater the world economy. Now their confidence in the safety net was mortally shaken.<\/p>\n

The time to worry about moral hazard is before a crisis, not in the middle of one.<\/p>\n

\"Printing<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Should Central Banks Be De-Fanged? Holman W. Jenkins writes: \u00a0Ben Bernanke wishes otherwise, but his historical reputation won\u2019t rest only on his efforts to save the financial system, but on his contribution to the meltdown in the first place by … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":12,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[13],"tags":[],"class_list":["post-30549","post","type-post","status-publish","format-standard","hentry","category-finance"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/posts\/30549","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/comments?post=30549"}],"version-history":[{"count":1,"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/posts\/30549\/revisions"}],"predecessor-version":[{"id":30550,"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/posts\/30549\/revisions\/30550"}],"wp:attachment":[{"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/media?parent=30549"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/categories?post=30549"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.w-t-w.org\/en\/wp-json\/wp\/v2\/tags?post=30549"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}