I just finished reading Too Big To Fail, which is basically a fly-on-the-wall chronicle of the entire process during 2008 of the five largest investment banks scrambling to survive and the flurry of activity in the government to prop them up. It’s a long book, but probably one of the more important reads of my life, but I have a few points I disagree with.

  • The book makes the ubiquitous point that the US taxpayers got paid back with interest on some of these bailouts. Of course, since we were borrowing the money, I wonder whether the interest from the banks is enough to offset the interest we had to pay on our loans. And the Hayekian argument: it’s impossible to know what could have been done with the money tied up in the banks, especially at a time of a “credit crunch” where small businesses couldn’t get loans and people couldn’t get mortgages.

    In other words, if the government hadn’t taken those loanable funds to give to the American banks, those people and businesses may have been able to get the loans they needed to expand and refinance, instead of stagnating.

  • Virtually the entire book, the Feds (Fed Chairman Bernanke, TreasurySec Paulson, et al.) are running around trying to “save” banks and the financial system from collapse. Except for the last fifty pages when the book delves in to the sausage factory that was the creation of TARP, they are doing this by taking these banks that are too large to be allowed to fail and bribing larger banks to buy them, creating even bigger banks.
  • It was galling to watch Bernanke, Paulson, and Geithner (now Paulson’s replacement as TreasurySec) conspire to force strong banks to take the TARP bailout even if they didn’t need it, so that accepting TARP funds wouldn’t be perceived by the market as weakness. I’m amazed that people can call for more regulation when the regulators willfully hatch a plot to lie the market and the American people in order to conceal which banks are financially unstable. Speechless.