Geithner: “none…would have survived”
Secretary Geithner acknowledges what most doomsdayers were saying last fall, that without the government’s extraordinary rescue measures, the entire financial system was on the verge of collapse. (Miller/Harper, Bloomberg)
“None of [the big Wall Street insitutions] would have survived” had the government stood aside and let the crisis run its course, he said. “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.”
Some have said this recent financial crisis wasn’t as bad as the 1930s’. I disagree, and have posted the following chart to make the point.
If you add JP Morgan and Wells Fargo to the chart, it looks much worse. Goldman and Morgan Stanley don’t have deposits, but did have $2 trillion in liabilities between them as of August 31, ’08.
Geithner made his point when asked about Blankfein and Gary Cohn’s comments to Bethany McLean that Goldman would have survived without government help. They need to tell themselves that to justify the stupendous compensation accruals they’ve put aside. It’s helpful that Geithner calls bull.
But the right way to fix this isn’t to erect some clumsy compensation apparatus to control pay on Wall Street (which won’t affect Goldman anyway because they don’t qualify as having received extraordinary assistance). The right way is to let them fail, as messy as that would be.
Additional resolution authority as envisioned in House/Senate legislation is helpful, but won’t do much good unless the size/complexity of these banks can be reduced dramatically before they’re on the verge of collapse…