On Tuesday, Mitch McConnell, the Senate minority leader, called for the abolition of municipal fire departments.
Firefighters, he declared, “won’t solve the problems that led to recent fires. They will make them worse.” The existence of fire departments, he went on, “not only allows for taxpayer-funded bailouts of burning buildings; it institutionalizes them.” He concluded, “The way to solve this problem is to let the people who make the mistakes that lead to fires pay for them. We won’t solve this problem until the biggest buildings are allowed to burn.”
O.K., I fibbed a bit. Mr. McConnell said almost everything I attributed to him, but he was talking about financial reform, not fire reform. In particular, he was objecting not to the existence of fire departments, but to legislation that would give the government the power to seize and restructure failing financial institutions.
But it amounts to the same thing.Krugman wasn't "fibbing". He was lying. Outright lying, and here's how we know:
In his speech, Mr. McConnell seemed to be saying that in the future, the U.S. government should just let banks fail. We “must put an end to taxpayer funded bailouts for Wall Street banks.” What’s wrong with that?
The answer is that letting banks fail — as opposed to seizing and restructuring them — is a bad idea for the same reason that it’s a bad idea to stand aside while an urban office building burns. In both cases, the damage has a tendency to spread. In 1930, U.S. officials stood aside as banks failed; the result was the Great Depression.OK, that is transparently FALSE. The "Great" Depression was, by every account, made into the GREAT depression by government intervention. Want a little evidence? How about this: the stock market, after it collapsed in 1929, was back by 1930. Around the world, the depression rippled out like waves in a pond; but the depression wasn't GREAT in other places, and was over within a few years. A depression in the U.S. in 1920 was met with VERY LITTLE federal government intervention. It came, and it went; like every previous depression in American history. What followed was The Roaring Twenties...a time of unparalleled improvement in the living standards of Americans.
Bank failures DID NOT result in the Great Depression. We always have had them. Other nations have had them. We have them during normal, even boom, times. Government intervention, using tools that had not existed before, CAUSED the conflagration that kept burning until AFTER WWII, when Congress reversed SOME of FDR's economic madness.
In 2008, they stood aside as Lehman Brothers imploded; within days, credit markets had frozen and we were staring into the economic abyss.
So it’s crucial to avoid disorderly bank collapses, just as it’s crucial to avoid out-of-control urban fires.This is Krugman's second big lie. Enron alumni Krugman should understand at least the basics of what he writes about. Since I assume he does, I know when he ignores them, pretending they don't exist, his goal is to intentionally lie.
Lehman was not, fundamentally, a bank under FDIC regulation. It was under a highly regulated regime, but it was not a "bank" in the sense most of us use that term.
Lehman did NOT "collapse", which Krugman tells us to imply that...with his burning building trope...it just went to ash. Lehman declared Chapter 11 bankruptcy. As Krugman SURELY knows, bankruptcy is a VERY ORDERLY process. It was...until Obama...governed by very well understood, RATIONAL rules. When Lehman declared bankruptcy, it was the largest to date.
The PREVIOUS holder of that dubious record was ENRON. The bankruptcy process WORKED, as we know it does when it is allowed to work. Both for ENRON and for LEHMAN. In Lehman's case, many of its major segments were transferred to purchasers...WHO BID COMPETITIVELY FOR THEM...within a few months of the initial filing. Lehman's assets still exist. Its liabilities are being paid off at some level, using those assets.
Lehman's every move was regulated. It didn't matter. A new regulatory system will not insure against another Lehman. Businesses WILL fail, just as businesses WILL succeed. If we allow them. Each side of that coin is essential, and we ALREADY have mechanisms that insure failure is RATIONAL AND ORDERLY. If we allow them to work.
But Krugman is suggesting that we devise a new system. He says it won't lead to future bail-outs...which keep the decision-makers happily nippled-up in their Wall Street dens, instead of being stripped under bankruptcy...while at the same time he knows that the Dodd proposal will TAKE money from all of us to form an immense slush fund specifically FOR future bail-outs.
Krugman also knows that his jazzy new scheme is being cobbled together by the two biggest BANK-WHORES in America; Chris Dodd and Bawney Frank.
So, Krugman suggests we put both fire safety inspection and fire-fighting in the hands of two known serial arsonists who have made themselves rich by their set fires. How did they do recently in preventing conflagration?