Here’s an important and underappreciated aspect of the Wall Street bailout, and of the tenures of Hank Paulson, Tim Geithner and Ben Bernanke: They believed that the Big Banks were an indispensable part of the U.S. economy. We just couldn’t get by without them.
It’s not a crazy idea. It’s not even necessarily as corrupt as it may sound. It may be a mistaken idea. But I’ve written before that I thought Geithner truly believed this, and this was a fairly innocent explanation for his solicitousness toward them. My critique of TARP is not that the government intervened, but that the government intervened with the aim of saving the banks, rather than winding down the failed banks in an orderly manner.
Hank Paulson’s testimony at the AIG trial has been telling in this regard. He has testified as to why AIG needed to be stripped down, and he’s made it clear that this was in contrast to the banks.
John Cassidy at the New Yorker lays it out well:
Cassidy also concludes — I think rightly — that this makes a case for breaking up the big banks. As long as individual companies are considered indispensable by the government, the economy can’t work right.
