Introduction
The bailouts have been a major concern at this web site from the very beginning. The reporting began long before the Occupy Wall Street Movement got started. Numerous articles have been published and read, and the debate is still hot and continues to this day.
The bailouts are very unpopular with the American People as we struggle to make ends meet, and no one bails us out when disaster strikes. We lose our jobs, our homes, our standard of living and way of life, and we survive any way we can. No one bails us out. Yet when our major institutions and the fat cats that run them fail the government bails them out. Many politicians are eager to score their political points, and so they claim they are against them and would never do it again. Yet the issue remains, were the bailouts necessary or a bad decision that was made to benefit the wealthy and powerful? Here is a surprising answer from one of the world’s foremost authorities.
Lecture at Wilkes University
Andrew Ross Sorkin is a veteran New York Times business reporter and author of ‘Too Big to Fail’, a book about Wall Street and government bailouts. He spoke to a standing room only gathering at Wilkes University on October 18, 2011.
Sorkin explained what it was like to report on these astonishing events. With breath taking speed, the federal government approved a $85 billion bailout of the insurance firm AIG; Bank of America bought the failing brokerage firm Merrill Lynch; and the financial brokerage firm Lehman Brothers filed for bankruptcy.
Sorkin was so excited he woke his wife up from her sleep, and told her what happened. Sorkin thought it was like a movie while his wife thought it was like a book. They wound up with both.
The Book and Movie
Over the next year, Sorkin interviewed more than 200 government officials and Wall Street executives and their employees and published his book “Too Big to Fail.” This year, HBO used the book to make a movie featuring Paul Giamatti as Federal Reserve chairman Ben Bernanke, and William Hurt as Henry Paulson the former Treasury Secretary. Sorkin’s research produced some fascinating results.
The Scenario
Sorkin discovered the likely scenario if the government did not intervene. A couple days after the AIG bailout and the Lehman bankruptcy, Federal Reserve officials feared a domino-effect starting with the bankruptcies of Morgan Stanly and Goldman Sachs and ending with the collapse of General Electric.
The Projections
Tim Geither was president of the Federal Reserve bank of New York at the time. He ordered five of his employees to model how the the US unemployment rate would change if the government did not bail out the collapsing financial firms
The projection showed that without intervention the unemployment rate would climb to about 24.6 percent within a year. With the intervention unemployment is at 9.1 percent. That is what the other side of the abyss looks like. To understand where we are today we must measure it against where we could be if the government did nothing.
Source: Michael R. Sisak, ‘Too Big to Fail’ author Sorkin talks Wall Street, government intervention at Wilkes, The Citizens Voice, October 19, 2011.