In 2008, just before Lehman Brothers' balance sheet collapsed and a furious employee punched CEO Dick Fuld square in the face, then-New York Fed President Timothy Geithner had a big idea…
Take the big, failing U.S. banks, and sell them for pennies on the dollar to the larger, somewhat healthier banks.
Make these institutions larger, and they could absorb all the toxic balance sheets – and save the global financial system from calamity.
That was the theory, at any rate. We all know how it worked out in the end: Counter-party risk froze the global credit markets and sent the financial system into a tailspin.
Congress failed to grasp what would happen to a financial system that lacked sufficient liquidity to function – like a brain running low on oxygen – before it passed the $787 billion stimulus of 2009. Two more rounds of quantitative easing, courtesy of an "independent" Fed would follow.
Of course, the "real" costs are virtually incalculable – incalculable costs that are still, a decade later, being borne by the middle class and working people of this country.
That's nothing I'd care to live through again, and yet here we are: staring down the barrel of a disaster brewing in Europe that could jump the Atlantic in minutes…
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.