by digby

Atrios explains the whole issue with the Fed in a paragraph:

It's a little weird that reporters are hesitant to clearly spell out what happened. Basically the Fed printed a huge amount of money. Some of that money they used to do what TARP was originally supposed to do, buy up Big Shitpile at inflated prices. Some of that money they lent to banks at basically 0 interest. Of course there were plenty of other things they could have done with 2 trillion bucks, if preserving the executive compensation at megabanks wasn't thought to be crucial for the survival of the economy. They could have dropped it from helicopters. They could have paid off mortgages directly. They could have given it to state governments. They could have bought me a SUPERTRAIN. But, no, they decided that propping up an obviously failed system of financial intermediaries was the important thing, so that's what they did.
The emphasis there is mine and I can't emphasize it enough. The ruling elites truly believed that the best way to bring back the economy was to ensure that jackasses like this weren't unduly inconvenienced, the thought being that even though they were the ones who caused the problems, we couldn't possibly do without them. I think this is an important corollary to Too Big To Fail --- Too Important To Fire. TITF.

And it's utter nonsense. There may be institutions that have to be rescued lest they take down the whole country, but this myth of the indispensable John Galt is self-serving swill. There are three hundred million people in the country and these guys just aren't that special.

For instance, this guy: James E. Glassman, managing Director and Chief economist at JP Morgan, the self-described "grown-up" who sent around an arrogant little screed yesterday in which he hilariously wrote this:

From the perspective of economic literacy, last week's hearings before the Senate's Permanent Subcommittee on Investigations had to be, well, not memorable, or inmemorable (as infamous is to famous)... The hearings exposed an unnerving ignorance of fundamental principles of market economics by folks who have a hand in remapping rules of finance that will be with us for a while. Flip assertions about what is and is not socially valuable reflect a confusion about our market economy that is as fundamental as knowing that George Washington was the first president of the United States.

Uhm, it's not every day you see someone call others illiterate in the same sentence in which he proves himself to be ... literally illiterate. ("Inmemorable" is only a word in Spanish --- and it means "immemorial.")

Worse, of course, is the fact that this Master of The Universe feels qualified to decide what is and is not "socially valuable" and then conflate that with our "market economy." Of course, if we had a real market economy people like Glassman would be working at Long John Silver's serving popcorn shrimp after what they did. That's assuming they weren't serving fish sticks at the closest minimum security prison. I think everyone in the country would probably agree to the social value of that.

He writes:
"The low level of economic literacy is plaguing financial reform. Reform is dangerous--it produces unintended consequences--if we don't understand the connection between incentives and economic behavior.

"Folks may like to hear that someone else is to blame for the mistakes they made, but everyone knows--including those who bought houses far beyond what they could afford and then walked when the promise of endless capital gains died and including the investors who bought funky financial instruments that enabled the housing bubble out west and in Florida to inflate--that Wall Street isn't the only culprit in the housing debacle.

"Sir, Goldman was no more culpable in the housing debacle than Congress. Because Washington is mostly focused on appeasing (or stoking) political outrage, the financial reform legislation in its present form seems likely to do little to fix the flaws and is heavily focused on changing things that had little to do with the housing debacle."

Let's look at that shall we? First, he says reform is dangerous because it produces unintended consequences. One might worry a bit more about that if it weren't for the fact that without the reforms the consequences have already been so dire, unintended or otherwise. And indeed, the connection between economic incentives and economic behavior among the Wall Street titans couldn't be more obvious. There is no personal risk to any of them, unlike the people who made bad bets on their suburban tract homes and went bankrupt, or investors who are now proud owners of condo complexes in Florida that are worth ten percent of what they paid for them. These fine Wall Street fellows, on the other hand, are considered so valuable that the only "haircut" any of them took was a temporary deferral of their ill gotten gains. (And oh did they cry about that ...)

The final paragraph is nearly incomprehensible. He asserts without any explanation that Goldman is no more responsible for the debacle than congress. Ok, fine. Stipulated. But you'll notice he then makes a rather jarring sleight of hand and tries to transition into an argument that financial reform is the problem. I suppose this is understandable since he can't admit that the government's responsibility lies in having given the banks free rein to rape the country blind. So he awkwardly shifts to a series of cliches about the congress being political and makes an untruthful assertion that averting another housing bubble is the only item on the agenda. It's pretty much gibberish.

Anyway, let's just say this isn't the smartest defense of Wall Street any of us have ever read but it probably presents the best evidence that the biggest mistake the Fed and the government made was in putting their faith and our money in the Wall Street MOUs after the meltdown. They obviously just aren't that bright if they can't even shut up and take the mild, mostly ineffectual medicine their lackeys in the congress are prescribing. This daily flurry of whining complaints reveals far more than they realize. And if they keep it up they may even manage to get Americans to look up from their taser porn and Brangelina gossip long enough to notice --- and then they really might have some problems.

If these TITF titans of the street are the smartest people in the world and the only ones who can save us, we are in much deeper trouble than we know.