Insightful Analysis of 2008 us banking collapse
Published 16/02/2012 | 05:00
Senseless Panic: How Washington Failed America
William M Isaac
So much has been written, broadcast and now seen at the movies about the 2008 US banking collapse that it's easy to quickly find oneself in the position of being overloaded with assessments on the events prior and subsequent to those fateful weeks.
William M Isaac has a useful viewpoint as a former chairman of the US Federal Deposit Insurance Corporation that was established by Congress in the midst of the Great Depression.
Having been appointed by President Jimmy Carter to the FDIC's three-person board in 1978, Mr Isaac went on to head the FDIC until 1985. During that time, the agency dealt with hundreds of bank collapses.
It's this perspective and experience that Mr Isaac draws on to lambast the road-map that George W Bush's government used in an effort to steer the US away from the brink of potentially much bigger financial disaster.
The Troubled Asset Relief Programme (TARP), which approved the use of $700bn of US taxpayers' money to bail out the banks, was a plan "concocted by Wall Street for the exclusive benefit of Wall Street," claims Mr Isaac in his book.
"By definition the program was destined to have taxpayers subsidise banks by overpaying for toxic assets and enrich investors by selling the assets for less than they were worth," he writes.
Mr Isaac argues that TARP did nothing to stabilise the US financial system and that such stabilisation could have been achieved without it.
While Mr Isaac's book provides an undoubtedly interesting standpoint, he is slow to recognise that despite whatever failings there were to TARP, the programme is likely to ultimately cost the taxpayer less than originally anticipated, and that some companies paid back money faster than had perhaps been anticipated.
There's still about $133bn of the TARP money to be repaid by nearly 460 firms though, including those that have already paid back some, such as AIG.
Regardless, Mr Isaac's book is worthy of a read -- even if not for his arguments about whether or not the TARP was the right solution -- but at least for the insightful history lesson of bailouts and the FDIC's work from the late 1970s to the early 1980s.
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