By Arnold Kling
one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.
Hear, hear. That is James K. Galbraith, whose political views diverge considerably from mine. But the issue of what should have been done with the banks breaks more on outsider-insider lines than on ideological lines.
If Galbraith and I are correct, then President Obama’s embrace of Geithner and the bailouts was a history-altering mistake. If Obama had followed our advice, perhaps the economy would not be in such bad shape and, more important, perhaps I would not have suffered the humiliation of losing my bet with Bryan on electoral outcomes.
But, of course, if you are an insider, the counterfactual history is that we would have had another Great Depression. Note that repetition of such a claim does not constitute proof.
Thanks to Mark Thoma for the pointer.