Tales of the Economic Fallout

Earlier in the week, Duffy asked to be pointed to some writing that might be in favor of or justify the current bailouts. I haven’t read anything other than fairly glib variations on the “too big to fail” theme, but here is some reading (and listening) of how we got here and some thinking that I had not heard previously:

The NYT Freakonomics blog has a very cogent history of recent events.

Wednesday, Fresh Air had a long interview with Michael Greenberger who explains in clear and riveting detail the shadow economy that is being protected by the current actions of the Fed. Do yourself a favor and listen to all 40, 45 minutes of this. (You can get this as a podcast from iTunes, too, for the next week or 10 days) I highly recommend this — Greenberger is not all that pessimistic about the economy, but he is critical of the management and policies that got us here. You may or may not agree with his diagnosis, but his description of the current state of the board is completely vital.

The NY Sun has an article interviewing a former SEC official who places some of the blame on the SEC:

The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults.
Making matters worse, according to Mr. Pickard, who helped write the original rule in 1975 as director of the SEC’s trading and markets division, is a move by the SEC this month to further erode the restraints on surviving broker-dealers by withdrawing requirements that they maintain a certain level of rating from the ratings agencies.

“They constructed a mechanism that simply didn’t work,” Mr. Pickard said. “The proof is in the pudding — three of the five broker-dealers have blown up.”

Tyler Cowan tries to find some positives in this, but observes:

I’d like to stress again that I remain worried about the rule of law in all these events. First, the referee is on the playing field. Second, while Dodd and others are on board, basically we have the executive branch of our government — the Treasury — operating without formal checks and balances. (Does that sound familiar? Would this administration do that?) That’s why it is all being done through the Fed. Fortunately the Fed is also a competent technocracy (as is the current Treasury) but the broader implications here are very worrying, both for governance and for the future of the Fed itself.

Jesse Eisenger at Portfolio writes a corrective to a recent WSJ article detailing exactly what sunk AIG (but read the whole thing):

For several years, A.I.G. dove headfirst into an insurance-like product called credit default swaps. It wrote hundreds of billions worth of protection mostly on the top slice of mortgage-backed structured financial products. Short-sellers and accounting rules didn’t cause A.I.G. to enter the C.D.S. protection business.

Then, there’s David Frum at Marketplace. Evidently he thinks that homeownership caused the crisis. And the government is responsible for forcing banks to write all of that bad paper to get all of that homeownership. Seriously. Frum neglects to tell us how an industry with one of the most effective lobbying forces ever, can be forced to write all of that bad paper.

What have you read that makes the details of this crisis clear? Drop your links in the comments….