Their decision not to bail out Lehman Brothers was based on a complete misreading of the economic psychology. Paulson was sick of doing bailouts. He seems to have had some sort of intuitive moral sense that it was time for some bank to pay for its mistakes. Bernanke and Geithner went along, and none of them anticipated the meltdown that followed.As I see it, there are two things wrong here:
But this is not a story of failure. It’s a story of effective muddling through. Bernanke & Co. never really got control of events. But they did avert disaster and committed only a few big blunders. In the real world, that counts as a job well done.
First, it is very difficult to speak about another's moral intuition, especially when that one was over Goldman Sachs and when he and Geithner, who was over the NY Fed, have such cozy relationships with Wall Street bank executives.
Morality is shown by consistent actions and decisions. Paulson insisted that Merrill Lynch and Bank of America merge, giving the latter a pretty hefty bailout. BofA would probably be insolvent without it, as well as Goldman Sachs.
Second, it was their lack of complete oversight of these banks over many years that led to the crisis, not just merely allowing Lehman to fail, but allowing AIG to essentially become a Hedge Fund that insured Goldman Sachs, becoming too big too fail.
While Brooks is appreciated, I am with Jack Bogle, Nassim Nicholas Taleb, Arianna Huffington and Eliot Spitzer. Their words and actions have mattered most in this economic crisis.