Two days ago, I came upon the front page of the New York Times for Tuesday. Now, the NYT. That’s a big paper. Prestige paper. I hate it, but it’s the big dog in the newspaper world.
And what is the lead story on page one? Armed intruder scaled a fence in front of the White House — and believe me, I worked at that White House a lot. I know that fence and it’s damned high. Then he ran across the North Lawn, supposedly one of the most heavily patrolled stretches of earth on the planet. Then he walked into the front door of the White House, which was unlocked with no guard at it. Then he ran down the main hall, and into the East Room, the most august room in the White House — and he was carrying a long knife. Finally he was tackled by a White House policeman after he was in an even more intimate room, the Green Room, used for very high powered receptions.
Again, he was carrying a knife. Mr. Obama was not there, but that’s not the story. The story is about high-level government incompetence.
It follows the amazing story of a private security guard getting onto an elevator with the President without anyone knowing he (1) had a gun; and (2) had a major criminal record.
So, that’s the first story.
The second story is about how the U.S. executive branch was warned over and over again about the power and the violence and aggressiveness of ISIS. But completely ignored the warnings because Mr. Obama was dealing with other problems like the furor over Benghazi. That was where the government basically just turned its back and allowed the U.S. Ambassador to be murdered in Libya. And when Mrs. Clinton was questioned about it, she basically said, “Well, what does it matter? He’s dead now.”
So, that’s the second story. Then the third story, the one that’s genuinely sickening, is about the roots of the crash of ’08, from which we are now finally recovering.
The story is that in 2008, the top people in charge of whether or not to let Lehman fail and thus bring on a crash were Henry Paulson, at one time, head of a huge investment bank named Goldman Sachs, in 2008, Treasury Secretary. Other players were Timothy Geithner, who, with no training in economics at all, was head of the New York Federal Reserve Bank. The key player, though, was Ben Bernanke, a Princeton professor of econ who had just recently been made head of the Federal Reserve. He had been testifying before Congress for a year that the financial system was strong and sound and a crash in real estate leading to a crash on Wall Street or Main Street was impossible.
All three men were interviewed for a recent postmortem on why the crash happened and why they allowed Lehman, at that time one of the five biggest IB’s in the world, to fail.
All three of them said that they would have liked to rescue Lehman, but they had no authority. Anyway, they said, Lehman was insolvent, so neither the Federal Reserve nor the U.S. Treasury could lend on the assets of Lehman.
Now, dear friends, I have been in the worlds of finance and government and government regulation of finance for decades. I have testified before a dozen Congressional Committees and in many federal and state trials.
I have seen a lot of fools and knaves and liars. But I have never seen such a combination of them all at once time as I saw in yesterday’s Times.
First of all, the Fed is the king of the financial jungle. It doesn’t need any rules to bail out a bank any more than a cheetah needs rules to eat a zebra. It’s the King Kong in the jungle. It can do whatever it pleases.
All Mr. Bernanke had to do was make a mild statement: “We here at the Fed would view with sorrow the failure of a bank as large as Lehman and we will make every effort to keep it afloat.”
By itself, without anything more, that would have kept Lehman intact. Lenders would have made loans to it, and it would have stayed in business and there would have been no crash and no recession. Just a whisper from Ben Bernanke would have saved millions of jobs and kept millions of Americans in their homes.
Again, the Fed doesn’t need rules. The Fed is the rules. They could have loaned on any collateral they saw fit to lend on. The ball was in their court and they just let it bounce by.
The same goes for Treasury Secretary Paulson. All he had to say was that the Treasury was going to work with the Fed to save Lehman because its survival was vital to the nation. End of story. No failure. No crash, no recession. Why didn’t he do it? Maybe bad blood between him and the head of Lehman. Maybe just plain ignorance, but it was dereliction of duty on a grand scale.
Same goes for Tim Geithner. He could have used his authority as head of the NY Fed to say he would lend against Lehman’s stressed assets — and the bank would have been saved. All three men said the cost of rescuing Lehman, about $7 billion, was too much. The losses to the nation when Lehman failed were in the trillions.
These men didn’t do even their most minimal duty. The nation and the world suffered terribly.
Now, it turned out that Lehman was in fact solvent. The selloff in it was a classic run on the bank and the feds could have stopped it by reassuring words. In the final analysis, the assets of Lehman turned out to be valuable indeed and the people who bought them at distressed prices during the bursting in 2008 made billions.
Now, why am I telling you this story?
Because government makes a lot of mistakes. An incredibly lot of mistakes. The people who run government, even at the very highest levels, are not great geniuses. And even when they are great geniuses, they make mistakes.
When you and I make serious mistakes we lose our spouse or our home or our jobs or our 401K, which is plenty bad.
But the people who run government are in control of gigantic, unstoppable machines. Their actions have the force of law. They are just humans — but with the whole power of the state behind them.
This is a good reason to be very careful who we have at the levers of power in government — and to try to keep the role of government as small as possible. Power will be abused. So let’s make sure it is out of the hands of a few willful people — as in the people who started the recession or missed ISIS. Government is a dangerous instrumentality. Sometimes needed, but always dangerous. Let’s bear it in mind. Because you call powerful idiots “the government” doesn’t mean they’re not idiots.