The Crisis That Never Was?

What if the financial crisis of 2008 wasn’t real? What if it was just a flim-flam? What if Paulson was just taking care of his crony friends? Are these just rhetorical questions? According to Gary North, author and frequent commentator at LewRockwell.Com, and   David Stockman, former budget director for President  Ronald Reagan, these question may not be rhetorical.

The WSJ recently published a tongue in cheek letter from Warren Buffet to Uncle Sam and signed your nephew, Warren. In his letter,Mr. Buffet thanks Uncle Sam for the quick response to the crisis and for saving America from a terrible disaster and he gives honorable mention to Paulson, Bernanke, Geithner, Sheila Bair, and George W. Bush.  Both North and Stockman take Mr. Buffet to task in their articles here and here respectively. 

Gary North’s article is laced with his marvelous wit and is written as a parody on the 1967 movie “The Flim -Flam Man”. If you decide to read it, be forwarned that you will want to laugh and cry at the same time. You will want to laugh because of Gary’s wit and you will want to cry because you know what he is saying is true. Stockman’s piece, which is referenced and quoted in North’s article, is more hard-nosed and provides details of the real financial situation in October 2008. I’m going to focus on the Stockman article.

Stockman takes issue on whether or not the world was really on the brink of disaster. Referring to Warren buffet’s letter, he had this to say: 

Specifically, his claim that “many of our largest industrial companies, dependent upon commercial paper financing that had disappeared, were weeks away from exhausting their cash resources” is unadulterated urban legend. Nothing remotely close to this ever happened.

The emphasis is mine.  He then explains that there was, in fact, a problem with the commercial paper (CP) market:

 …So it’s accurate to say that the commercial paper market had seized up and that massive amounts of maturing paper had no ability to roll. 

But those specific facts about the condition of the CP market do not remotely prove that the nation’s great industrial corporations were on the edge of an economic black hole or that Main Street would have experienced crippling waves of defaulted payrolls for lack of cash.

 

 

 

 

Stockman goes on to explain in detail how because of playing high risk games many companies , like Goldman Sachs and GE Capital, were in a squeeze. But the risk was not that they wouldn’t be able to meet their obligations. The risk they were faced with was seeing their profits wiped out, their bonuses illuminated, their share prices plummeting, and the shareholders  would most likely fire the CEOs. Which, of course, is exactly what should have happened. But instead, Hank Paulson took it upon himself to use our money to save is friends because it was in America’s best interest. Bush bought into Paulson’s panic and approved the action after the fact. Buffet, Goldman Sachs, and others made billions and you and I get to pay for it.

Here is how Stockman sums it up:

 There never was a crisis on Main Street. The panic was in the US Treasury Department where the clueless Hank Paulson was swamped with calls from his crony capitalist buddies like Immelt and his counterparts up and down Wall Street, but especially at Goldman Sachs (GS). When Goldman’s stock price ticked $65 in the days after Lehman, Mr. Market was desperately trying to purge the reckless speculation and leveraged rot that had been building up in the nation’s financial system ever since the Fed discovered in the 1990s that it could print endless dollars and that they would be obligingly accumulated by the mercantilist overlords of China and East Asia.

Thanks to the Geithner/ Paulson/ Bernanke claque, the needed financial cleansing and purge never happened. Instead, we’ve just drifted deeper into a statist regime in which Uncle Sam backstops, stimulates, underwrites, and meddles with every aspect of our broken capitalist machine. Uncle Sam wasn’t our savior in September 2008. By the panicked actions of a few desperate men occupying high offices, he was empowered to become our destroyer. Thanking Uncle Sam is fatuous under any circumstance. But to thank the men who brought on TARP, bailouts, and the lunacy of ZIRP and QE is pure humbug.

(The strikethrough is mine. I think you know why.)

 So was the financial crisis of 2008 the biggest scam ever run on the American public? It certainly seems plausible. If it’s true, Hank Paulson makes Murdoch look like a piker and he should be in jail.