ECONOMIC PEARL HARBOR: FED Asleep At The SWITCH! by Lior Gantz | May 14, 2019 | Stock Market Wealth
On Sunday, I recommended watching THIS documentary as one of the best ways to understand the dynamics of the 2008 emergency measures taken in order to stop the credit system from going under.
One of the biggest lessons that was reinforced in my mind – after watching it five consecutive times – is that there’s no way that a complex structure like the U.S. economy can run smoothly when the differences between people’s educational background in the subjects of citizenship, rights, the constitution, and the monetary system, are so large that the Grand Canyon looks small in comparison.
Hank Paulson ran Goldman Sachs for many years before the Bush administration courted him for the job of Treasury Secretary. He was retired, essentially, as they approached him to join the government. He was incredibly reluctant at first, and refused. It took several meetings with George Bush to get him on board.
He admits to totally missing the risks of a nationwide mortgage and housing crisis. This is a big lesson from the time. Even if all the information is available to you and your job is to monitor the functionality of the system, “Black Swan” events will happen. The reason they occurred in 2008 was because FREE THINKING people that warned about the meltdown and followed the reckless lending taking place, were operating outside of the government. To them, it was clear as day. In other words, it’s only a Black Swan to the ignorant multitude, but not to the enlightened few.
It takes balls and courage to present Secretary Treasury Paulson or the Federal Reserve board with evidence of problems, especially if you’re an employee who fears getting sacked over the spreading panic.
Investors who were betting big on the meltdown were far more incentivized by financial gain, related to shorting Freddie and Fannie than with saving the economy. So the responsibility in this instance, as I see it, LAY with the regulators who did not legislate stricter banking rules (which would have saved the global economy a world of pain).
Buffett is actually the one who called Hank Paulson with the idea of the TARP program. He suggested that instead of the government buying toxic assets, the government should just lend institutions money with interest attached, thus eliminating the lack of transparency between banks. This lack of trust, which existed before TARP, was one of the BIGGEST causes for the severity of the crisis. Lack of trust didn’t bring 2008 about (that was bad lending practices), but lack of trust was the catalyst for the market’s largest sell-off days.
It was a run on the banks. Buffett called it an Economic Pearl Harbor and said that had it not worked, you’d probably have found him hiding in a cave until the whole thing blew over.
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