Bailouts Are Us

"Ben Bernanke once might have been tempted to duck into the Fed chairman's private bathroom to high-five himself over his heroics to save the financial system. ... Let us review the relevant history: Inaugurating the modern era of bailouts was Continental Illinois in 1984, following which a top regulator declared 111 national banks were 'too big to fail.' ... Since then the circle has been expanded willynilly to include more banks, one hedge fund (in 1998) and one investment bank (2008). ... Bailouts, remember, are an informal substitute for bankruptcy, with its messy and prolonged division of the leftovers. Bailouts create moral hazard, all right, but how much really? ... Meanwhile, the real moral hazard disaster lies elsewhere--in the degree to which, in order to avoid being confronted with the bailout question, Washington has relied on monetary policy to contain incipient financial market crises. ... This unsavory trend is not unrelated to another, namely Washington's steady politicization of the credit markets", Holman Jenkins (HJ) at the WSJ, 9 July 2008.

I largely agree with HJ. Why is the Treasury full of "former" Goldman Sachs guys? Why did Wachovia just hire Robert Steel (RS), who might get $38 million there next year? Aside from bringing "access" to the Treasury and having a rolodex that might be as large as Robert Rubin's, probably nothing. Did RS spend months discreetly setting this up through the positions he advocated, see my 14 October 2007, 6 and 13 February, 7 and 24 April and 28 May 2008 posts mentioning RS. The big thing RS brings Wachovia is a "call option" on the next Fed bailout.