Wall Street Circles the Drain
Reflecting on today’s astonishing run on the bank, Gordon Smith writes:
The big issue, going forward, is how the events of this year reshape our regulatory system. In a decade, will we look back on Bear Stearns, Frannie, and Lehman — oh, and have you been paying attention to the problems at WaMu? — in the same way that we look back on Enron?
My guess: no. Enron will be too modest an analog. By the time the dust settles, the New Deal will seem the more apt comparison.
The. New. Deal. Friends, it’s time to go to the mattresses. And put your money there. Have you read this color commentary on the mood up in NYC? Or this catch from the dealbreaker? “[T]hey are saying that AIG has asked the Federal Reserve for some kind of emergency bridge loans. Can the Fed lend to an insurance company?” (More here.)
It’s pretty fortunate that the political blogosphere, which, you know, is much more substantive and issue-oriented than the mainstream press, is all over the story of the rapid collapse of the US financial industry. Indeed, of the top twenty most recent posts at Instapundit and the Daily Dish, only seventeen are explicitly about presidential politics! And one is about the financial crisis (though, to be fair, Reynolds does put a dig in against Obama.)
I myself don’t know what to think. Larry Ribstein thinks that it means the end of large corporations managing financial risks. Is that the problem – bad governance? Or is this a mass psychology problem subject to Nudge-like fixes? The question I have about Larry’s conception of the problem is that it doesn’t explain firms like Goldman, which appear to be surviving the crisis with little hint of major trouble. The goal for policy makers shouldn’t be just to focus on what’s gone wrong, but what hasn’t: what makes Goldman’s corporate culture so superior to the rest of the Street’s?
That’s is a discussion we should have next week. In the meantime, let’s try to survive tomorrow’s opening bell.
[Update: You think I'm a chicken little? Alan Greenspan said the following earlier today:"''I can't believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring.' The former Federal Reserve chairman also predicted that the financial crisis would see the failure of more major financial institutions, even as embattled Wall Street investment giant Lehman Brothers scrambled to find a buyer. "]
(Image Source: Wikicommons)