Applaud The Economist for a good dose of common sense, reminding bankers just how foolish they were and how close they brought all the rest of us to the “abyss,” as President Obama called it today. This piece contains critical lessons that you’d think everybody would know by now, but you can bet they don’t.
The press has been putting up admirable resistance as it sees the Street’s appalling push underway in Washington to go on with business as usual. A critical part of that rear-guard action involves changing the narrative of the crisis, or as the The Economist puts it: writing “revisionist history.” As it applauds the paying back of TARP funds, the magazine cautions that:
…a worryingly revisionist history of the credit crunch is being penned. It says that some banks did not really need government help and were bullied into accepting it last year as part of a wider bail-out of their flakier peers…
The message is clear: we never needed government help, and we don’t want it now.
That is both wrong and dangerous.
And here are those critical lessons from up top:
Wrong, because in the depths of the crisis the share prices and borrowing costs of all banks indicated an almost complete collapse in confidence. Some firms did perform better than others, but only relatively so. All the banks benefited from an implicit state guarantee. Even those lenders who never got capital would probably not have survived without government rescues of weaker firms to which they had counterparty exposures.
That includes you, Jamie Dimon. What the mag is saying here is that had the government not stepped in with its trillions, you’d all be toast, and so would the rest of us. What you’ve gone through is just a minor singeing compared to what would’ve happened had you been left to Mr. Market’s vicissitudes.
Need more reasons?
Similarly all banks are now plugged into government life-support systems. Their liquidity is supported by more generous collateral rules at central banks. Profits are being boosted by rock-bottom short-term interest rates. Some banks have managed to issue debt without public guarantees, but the system needs to refinance $26 trillion of wholesale funding by 2011; without an implicit state backstop this would surely be impossible. And the value of banks’ assets is being sheltered by central banks’ asset purchases and more generous accounting rules. The truth is that the West has a thinly capitalised banking system that is being allowed to earn its way back to health. Save for defence and space exploration it is hard to think of a privately run industry more dependent on the state.
This is all right as rain, as is the prescription The Economist pulls out:
It was the entire banking system, not a few individual firms, that failed. It is the entire system that must now be fixed.
The president has his bully pulpit, which he used today to throw a brushback pitch Wall Street’s way (would that he would bean them):
“Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected,” Obama said in an interview with Bloomberg Television today at the White House. “All we’re doing is cleaning up after the mess that was made.”
The press has its platform, too, of course, and The Economist uses it well here.