I think they are looking for something like this passage (especially
the last two sentences) from _Wall Street_, but revised for the
current scandal:
>>>>>>>>>>>
Every institution that was supposed to watch the S&Ls botched the task.
Topping the roster of failures are the regulators, federal and state, in the
grip of the early-Reagan-era euphoria, who failed to supervise the institutions
— often run by dim provincials — that they had just set free to enter
businesses they'd never been in before. Congress had long been in the
industry's pocket. Even a president's son, Neil Bush, helped drive an S&L
into the ground, Denver's Silverado (Wilmsen 1991). The administration,
with the complicity of an uncurious press, successfully kept Silverado out
of the 1992 campaign, no doubt helped by equal Democratic political and
financial collusion in the disaster.
But it's wrong to blame only the government, despite the American habit of doing so. Virtually every high-end profession around was involved (a point made well by Martin Mayer [1990]). Auditors repeatedly certified fictitious financial statements, lawyers argued on behalf of con artists and incompetents, investment banks bilked naïve S&L managers, and consultants testified as character witnesses for felons. One of these character witnesses was Alan Greenspan, then an undistinguished economist from whom "you could order the opinion you needed" (Mayer 1990). Greenspan praised thrift-killer Charles Keating's "seasoned and expert" management team for rescuing a "badly burdened" thrift through "sound and profitable" investments. Every word of this was untrue. Greenspan's reputation, however, survived intact (just as it did his earlier demented jottings for Ayn Rand's Objectivist newsletter).
In its infinite generosity, Washington came to the rescue. Of course it
had no choice; no modern government would dare let a financial crisis
turn into a general collapse. Yet the situation is rich with irony. In the
early 1990s, Greenspan would craft the Federal Reserve's bailout of the
1980s mania. And the braindead caretaker administration of George Bush
crafted the greatest socialization of private loss in history, the S&L bailout.
And, remarkably, almost nobody has suffered serious criminal penalties
or political disgrace for this rampant abuse of trust. Huge quantities of
public money — some $200 billion, though definitive accountings are hard
to come by — were spent with little discussion or analysis, and the affair is
now largely forgotten. The chance to use the industry's partial liquidation
as an opportunity to develop new public and cooperative financial institutions
was blown. Within a couple of years of the crisis' passing, no
one paid it any mind any longer. It's as if it never happened. (89-90)
>>>>>>>>>>>>
This seems to be another such moment and I think people are looking to you to say something that we aren't already hearing on the evening news--especially since I, for one, have been listening carefully to you for several years predicting just this outcome: I expected that when this hit, you would have some radical recommendations to make. Maybe my expectations are skewed by some form of hero worship--LBO to the rescue!--but if the only options in the current moment are bailout the banks or pull a Japan, then I'd say we need to work on diversification and I'd expected you'd have some powerful claims for what that should look like. I've been caught up with working on my dissertation so it's possible I've missed the "definitive article" on the housing/finance collapse--or maybe it's still too early to tell. In any case, I think the important thing is to not let this drift away in the public mind and to use it, as you said of the S&L debacle, "as an opportunity to develop new public and cooperative financial institutions"--which, of course, requires both stoking the fire that should be smoldering around these bailouts and outlining what those new institutions might look like.
Recently I got a note from the FHA telling me that they would help me with my mortgage if I was having trouble. They were talking about a 3-yr ARM we refinanced two years ago, but which we initially had to get in order to qualify to buy the one bedroom apartment we live in on the outskirts of Arlington, VA. It has often occurred to me over the last few years--often after listening to one of your shows--that it might have been better if, when the home values in my area went up, there had been some amount that the FHA had thrown in to help people who would have qualified to buy the property they were buying if they were buying it "X" years ago, i.e. before the bubble began. They could have written it as a sort of homeowner grant that, if you were to sell sometime down the road and make extra money, would need to be kicked back to them, possibly w/ interest. At the time, I suppose that would have been decried by many people, but in retrospect, it seems like it might have been a fairly responsible move--especially if it had been partially funded by a windfall tax of some sort on investors who were buying places in order to flip them. Again, hindsight 20/20, etc. Or maybe I'm still clueless as to how all this does/might work--it certainly would require some difficult calculations, and many people might have just gone with the private ARMs since they would likely be much more interested in getting everything settled quickly.
The problems on the finance side seem more obvious--at least as I've heard them from you over the years--and I think it is very important to keep public anger focused on that, even if it gets some of the details wrong initially. Whatever problems you may have w/ Dean Baker (or his specific analyses), I think he's got the right target.
s