The Big 87654 Did It!

"The chief lesson from Japan, scholars say, is that good monetary and fiscal policies are necessary but not sufficient for a recovery. The government also needs to spend political capital by taking on entrenched interests: the management, shareholders, and debtholders of big but unhealthy banks that need to be shut down so the financial system can get a fresh start. That campaign must start wth a cold-eyed audit of the books of every major financial institution. 'We have not closed down the banks ruthlessly. That's the big problem,' says Harvard University's Kenneth Rogoff, who delivered a paper at the [Jan. 3-5] San Francisco meeting. ... It has become conventional wisdom that it was a huge mistake for the government to let Lehman Brothers go under, but [Anil] Kashyap said: 'I don't think it's so obvious that if you had saved Lehman no one else big would have failed.' The bigger mistake, he said, was taking an ad hoc, inconsistent approach that has left the private sector confused about which institutions are sage to invest in, this chilling capital-raising", my emphasis, Peter Coy at Businessweek, 19 January 2009.

Kashyap is a University of Chicago professor. Does Rogoff think Big 87654 audits of financial institutions are not "cold-eyed"? If so, he should lobby to prevent the Big 87654 from continuing to audit these institutions. I wonder if the PCAOB shares Rogoff's opinion. Kashyap agrees with Higgs, see my 19 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/policy-instability.html.