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February 10, 2012
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David G. Savage: Why activists may not be in a hurry to have High Court rule on alternative marriage
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The Kosher Gourmet byDana Velden: Going to the bother of making soup? You know it better be good. This CREAM OF TOMATO SOUP certainly is! And it's a cinch to make, too (Includes techinques and serving secrets)
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Mark Clayton: How did Anonymous hackers eavesdrop on FBI and Scotland Yard?
February 3, 2012
Edmund Sanders : Israeli official says Iran is creating missile that could reach East Coast of US
Victoria Kim: Immigrant-smuggling ring used black drivers to avoid racial profiling
February 2, 2012
Jim Carney: Wrong number call may have saved her life
Reza Kahlili : Ex-CIA spy in Iran's Revolutionary Guard: What Obama doesn't grasp about striking deals with Tehran
Tina Susman: For woodchuck rescuer, every day is Groundhog Day
February 1, 2012
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Emily Brandon: How to Take Advantage of New 401(k) Fee Disclosures
January 31, 2012
January 30, 2012
Paul Richter and Ramin Mostaghim: Misreading Teheran's limits -- deadly and economically devastating as they may be -- is a risk administration, Europe seem willing to take
Suzanne Bohan: Warning: Nap-deprived tots missing more than sleep, study finds
Meg Handley: Banks Revamping Rewards Programs to Woo Customers
January 27, 2012
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Yochonon Donn: In liberal New York City, fervently-Orthodox Jews may soon be getting a district to call their own
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Katy Hopkins: New budget rules may affect how much money you get for college
January 26, 2012
Ed Koch: To the New York Times, calling for the murder of Jews by those capable of having their incitement taken seriously isn't news
Jeannine Stein: Mental illness struck one in five U.S. adults in 2010: Report
January 25, 2012
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Fred Weir: Putin: Multiethnic Russia cannot survive as a US-style 'melting pot'; must find its own way
Susan Johnston: 5 Sneaky Coupon Strategies Consumers Should Watch Out For
January 24, 2012
Carol Clark: The price of your soul: How your brain decides whether to 'sell out'
Caroline B. Glick: America lost most in 'Arab Spring'. Sadly, many voters still don't grasp the extent
Warren Richey: Drug criminal scores win in GPS ruling from conservative-leaning high court
Erika Bolstad: Black conservatives gather to talk about gaining strength
January 23, 2012
Melissa Dribben: Jewish voters to play a key role in Florida's Republican primary
Jordan Rau: In quest to grow, Catholic hospital system will announce this morning its break from church
Ali Safi: U.S. envoy gives Taliban terms for peace talks
January 19, 2012
January 18, 2012
January 17, 2012
Frank J. Gaffney Jr.: No-kidding red lines: U.S. response to an Iranian nuke may be bluster, but Israel's won't be
David G. Savage: They sued their principals after slandering them online --- now the cases are headed to the Supreme Court
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January 13, 2012
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Alexia Elejalde-Ruiz: Thriving through touch: Gentle massage helps older people with low mobility improve in mind and body
January 12, 2012
Warren Richey: Landmark Supreme Court ruling a 'resounding win' for religious groups
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John Fauber : Statins found to raise diabetes risk in postmenopausal women
Katy Hopkins : Consider This Before You Pay for an Online Degree
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January 11, 2012
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Tom Hussain: Pakistan -- recipient of more than $21 billion in civilian and military aid -- speeds pursuit of Iranian pipeline, defying US
David G. Savage: High court signals it won't be loosening TV's 'indecency' rules
Stephen Ceasar: Oklahoma's Islamic law amendment can't go into effect, court rules
January 10, 2012
Reza Kahlili: From an ex-CIA spy: US must exploit new split in Iran's Revolutionary Guard
Karen Kaplan: Study: Nicotine replacement products ineffective when used in real-life situations
January 9, 2012
Michael Doyle: Put through legal hell over dream home, couple fought back hard --- all the way to Supreme Court
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Jewish World Review
Dec. 18, 2009
/ 1 Teves 5770
Were the banks that sick to begin with?
By
Robert Robb
http://www.JewishWorldReview.com |
The accepted narrative is that, after Lehman Brothers filed for bankruptcy in
September 2008, the American financial system teetered on complete collapse. Only
massive federal intervention prevented it from imploding.
This narrative is the premise underlying extensive regulatory reform for American
financial institutions and markets, such as recently passed the House of
Representatives.
But now that, a little more than a year later, all the major financial institutions
have or are in the process of repaying the capital given to them under the Troubled
Asset Relief Program, it's worth kicking the tires a bit on the accepted narrative.
The Lehman bankruptcy supposedly froze credit markets. The commercial paper market
was roiled for awhile when the assets of one money market fund, with exposure to
Lehman, dipped below par. And short-term interbank lending rates did shoot up for
awhile.
Stanford economist John Taylor has convincingly established that the latter wasn't a
result of the Lehman bankruptcy. Instead he attributes it to all the uncertainty
about the federal government's response to the Lehman bankruptcy, which did set off
a deep stock market decline and panic in Washington.
In any event, there's little evidence of an overall credit crunch in the numbers.
Total business debt outstanding went up in the two quarters following Lehman's
bankruptcy. Even today, it exceeds what it was in the quarter preceding the
bankruptcy.
The first decision of the federal government following the Lehman bankruptcy was to
bail out AIG. AIG had liquidity problems because it had insured various
collateralized debt obligations that were losing market value. The counterparties
were mostly large financial institutions. The losses to which AIG's illiquidity
exposed them were relatively minor compared to their overall operations.
Nevertheless, the federal government made them whole to keep AIG from going
bankrupt.
AIG had pension and commercial paper obligations about which federal regulators
worried. But AIG was not a bank, wasn't a big player in financial markets, and was
subject to protected reserve requirements in its insurance products. Hard to see a
limited AIG bankruptcy as something that would have toppled the entire financial
structure of the United States.
And then there was TARP. The first TARP capital infusions were made in mid-October
2008. At the time, Treasury Secretary Henry Paulson said that the big banks
accepting them were healthy. They were accepting the infusions to make it less of a
stigma for financial institutions that really needed the help. There are indications
that federal officials didn't really believe that was the case, that they believed
that these large institutions were in trouble themselves.
Either way, this is deeply disturbing. Either federal officials forced healthy banks
to take taxpayer money to obscure from investors and depositors the true financial
condition of other banks, or federal officials were lying about their perception of
the true financial condition of these financial institutions.
Several of these large financial institutions had paid back their TARP money by
June, with interest and a premium to buy back the stock options given as collateral.
The last two large financial institutions, Wells Fargo and Citigroup, announced
plans to do so this week.
If our financial system was teetering on collapse, how did the largest financial
institutions in the country get so well so fast? After all, this occurred in the
midst of a severe recession during which demand for financial service products has
sharply declined.
Some look at this and say, it proves how effective the government intervention has
been. That's one explanation.
Another is that excessively lax monetary policy and careless federal activity in the
secondary mortgage market (Fannie Mae and Freddie Mac) created a bubble in
collateralized debt obligations. When the bubble burst and the sorting out began,
Washington panicked and overreacted. And the reason financial institutions recovered
so quickly in the midst of a severe recession is that they weren't as sick as
Washington thought to begin with.
The chronology and the facts more comfortably fit the latter explanation than the
former.
Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.
JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.
Robert Robb Archives
© 2009, The Arizona Republic
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