The age of greed

THE AGE OF GREED: Paul Krugman and Robin Wells review Jeff Madrick's The Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present. Paul Krugman, whom I respect but ultimately disagree with on a great number of issues, and his co-author present the following situation, before revealing (surprise, surprise) that they were describing what they perceive to be the 2008-2009 financial crisis, as well as the one seen in 1991:

Major US financial institutions have badly overreached. They created and sold new financial instruments without understanding the risk. They poured money into dubious loans in pursuit of short-term profits, dismissing clear warnings that the borrowers might not be able to repay those loans. When things went bad, they turned to the government for help, relying on emergency aid and federal guarantees—thereby putting large amounts of taxpayer money at risk—in order to get by. And then, once the crisis was past, they went right back to denouncing big government, and resumed the very practices that created the crisis.

The great financial crisis of 2008–2009, whose consequences still blight our economy, is sometimes portrayed as a “black swan” or a “100-year flood”—that is, as an extraordinary event that nobody could have predicted. But it was, in fact, just the most recent installment in a recurrent pattern of financial overreach, taxpayer bailout, and subsequent Wall Street ingratitude. And all indications are that the pattern is set to continue.

The solution lies not in the restriction of the free market, or in the installation and establishment of further regulation, but instead in the dismantling of the system which allows Wall Street to function in this manner; the left continues to deplore the cyclical process of failure and bailout, but often fail to recognise their fundamental role in one of those primary steps. It's the bailouts, stupid! In continuing to pander to the 'too big to fail' policy of saving failing corporations, you're saving whales which beach themselves. It may sound crude, particularly in the unfashionable realm of fiscal conservatism, but regulators should stop wasting taxpayers' money in a fruitless effort to shore up businesses which will likely perpetuate the practices which put themselves in a dire financial position to begin with.