Can Pundits Help?

I like Floyd Norris when he’s angry.

Lehman did not measure up because its chief executive, Richard S. Fuld Jr., simply was not reckless enough as he ran Lehman into the ground.

Had he had the foresight to make a lot more bad bets in the derivatives market, the government would have feared financial chaos and might have nationalized Lehman, just as it nationalized A.I.G., Fannie Mae and Freddie Mac. Or it would have subsidized a takeover, as it did for Bear Stearns.

The Paulson-Bernanke Doctrine is not “too big to fail.” It is “too reckless to fail.” …

If these nationalizations smack of socialism, it is closer to the Marxism of Groucho than of Karl.

At the same time, I wouldn’t mind seeing a slight downtick in the amount of generalized recriminating going on, especially insofar as it’s directed at the government. Pundits (not Floyd!) who have no idea what counterparty risk is and who can’t even tell you the difference between equity and debt are opining with great moral seriousness about the problems of privatizing profits and socializing losses, the double standards involved in bailing out banks but not homeowners, the obscene amounts of money that banks’ executives made on the way up and which they won’t have to repay on the way down, and so on and so forth ad nauseam.

And the problem is exacerbated by the fact that genuinely informed commentators are making exactly the same points.

It’s not that the complaints are groundless, although I do think they’re larded with an astonishing amount of hindsight, and they do hold national regulators to standards of perfection and perspicacity which are utterly unrealistic.

I just think that now’s not the best time to be pontificating along such lines. There’s a time and a place to sit in one’s armchair and expound upon the fact that we’d all be better off if these big financial institutions hadn’t taken on so much risk and that really regulators should never have allowed the financial system to become this risky in the first place.

Right now, in the midst of the crisis, when banks still aren’t lending to each other and there are dozens of major fires to be put out, is probably not that time or that place.

On the other hand, helpful suggestions would be very gratefully appreciated, I’m sure. Start from where we are right now, and come up with some bright ideas for how to get a liquid and well-regulated financial system working again. Ad hoc bailouts and liquidity injections might be clumsy and unfortunate and rife with moral hazard — but they might well also be the only tools at our disposal.

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