Bailout Nation by Barry Ritholtz

Author:Barry Ritholtz
Language: eng
Format: epub
Publisher: Wiley
Published: 2010-05-11T04:00:00+00:00

We now know the answers to Lowenstein’s rhetorical question: Yes, they most certainly were counting on the Fed. And, we know precisely what that next problem child was—the many mortgage-backed bonds and credit default swap bets upon them. Further, we have witnessed investors lulled from 2005 to 2007 into what I have described elsewhere as a “stupefying complacency.”

To be certain, the management of large investment banks missed the obvious lesson here; as soon as they were able to, they willingly leveraged up nearly as much as LTCM had. When one considers the astonishing parallels between that past crisis and the current one, the missed opportunity for a “dose of [market] discipline” is all the more regrettable.

Had Long-Term Capital Management been allowed to fail, it’s quite possible the worst of the current credit crisis, regulatory fecklessness, and speculator recklessness could have been avoided. Instead, there was a massive, cascading systemwide failure. At every point along the way, from home purchases in Stockton, California, to Iceland’s fiscal demise, things went awry.

So much for the lessons learned.

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