Daily Ticker

Alan Blinder: Everything You Think You Know About the Crisis Is Wrong

Aaron Task
Daily Ticker

In After the Music Stopped, former Fed Vice Chair Alan Blinder provides what he calls an “interpretative history” of, as the subtitle reads, ‘the financial crisis, the response and the work ahead.’

In the accompanying video, Blinder discusses his views on the crisis as well as the biggest misconceptions about its cause and aftermath, including:

Banks are already heavily regulated so more regulation won’t prevent another crisis: “The problem was not how many regulations were written, it was the enforcement,” he says. “Bank regulators let banks do things they never, never should’ve allowed.”

Related: Mary Jo White 'Is A Great Appointment': Chris Whalen

Blinder, a former adviser to President Clinton and currently an economics professor at Princeton, is an unabashed believer in the necessity and utility of regulation, especially when it comes to the banks.

“There’s a place to let the free market rip but there aren’t that many and finance is certainly not one of them,” he says. The industry has “a history of going to excesses and fleecing people. That’s not new…and a major reason we have financial regulation.”

Which brings us to another of Blinder’s top misconceptions about the crisis: Banks are safer today vs. before the crisis, in part because of new regulations in place.

Banks are “quite a bit safer now” in terms of their capital and liquidity position, especially the investment banks, he says. “That doesn’t mean perfectly safe but you’ll never get that.”

Related: What's What's Inside America's Banks? No One Knows, Says ProPublica's Jesse Eisinger

As for the hugely controversial (and huge) Dodd-Frank Act, Blinder says it is “on the way to improving the bank regulatory system” and he takes comfort in the new provisions that call for an “orderly liquidation” of a troubled firm.

“It’s completely untested – and hopefully will be for a while,” he says. “But next time a Lehman comes down the line, the people in charge will have better options than Paulson, Bernanke and Geithner” did in September 2008.

Similarly, he believes the new Basel III standards make the global banking system safer -- although he laments the full implementation was recently delayed until 2019.

Related: Banks Win! Banks Win! (New Year, Same Old Story)

Most controversial of all: Blinder says TARP worked and was money well spent.

“The notion TARP was ‘a waste of taxpayer money that shoveled funds into the hands of undeserving bankers and did no good for the taxpayer’” is the biggest misconception about the crisis and its aftermath, according to Blinder. “Everything except the word ‘undeserving’ is false.”

Of course, there’s a lot to quibble with about his view on TARP – and I do, as you’ll see in the accompanying video. I also wonder what someone like Neil Barofsky or Simon Johnson or Bill Black would have to say about it – and there’s plenty of people who’ll disagree with Blinder on regulation. Stay tuned!

Related: TARP Was Even Worse Than You Think: “An Abysmal Failure,” Barofsky Says

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

Rates

View Comments (201)