The New York Times wrote an editorial on Sunday complaining about Wall Street’s return to “juicy” bonuses that “could once again foster excessive risk taking.” Unfortunately I couldn’t read anything else they had to say after this neon lit passage:
Sure enough, last week, Morgan Stanley explained its quarterly loss by saying that some of its traders were still “gun shy” after last year’s near-death experience in the financial markets, but that the firm now planned to increase its risk taking. To try to stay competitive with Goldman and other banks, Morgan Stanley has also allocated a big chunk of its net revenue for compensation.
This from a couple of firms that 1) probably wouldn’t even be around today were it not for ongoing government rescues of the financial system and 2) by dint of being too big to fail, now enjoy an implicit guarantee of future bailouts if their bets go wrong. The financial system may be stabilizing for now, but the danger to taxpayers if markets were to buckle again is at least as great as ever.
Hmm… I wonder who was supportive of policies that led to financial institutions surviving? From the NYT, September 28, 2008:
Still, the imperfections in this bill are the result of a democratic process that can be rethought, revisited and reworked. It is better than nothing, which is what some backward-looking House Republicans gave Americans on Monday.
That was from an op-ed lamenting the GOP voting down the first bailout. They supported even the early version, even though it wasn’t perfect, in order to save the economy. The NYT wasn’t opposed to Treasury purchases of assets, they just wanted judicial review. The NYT wanted help for homeowners in addition the Wall Street bailout, not in spite of it, saying, “The financial crisis is as much a problem for homeowners as for Wall Street investment bankers.” And when offering a critique of the final bill that was passed, the NYT’s argument was that it should have done more, not less.
It is getting harder and harder not to blurt out every day, we told you so! But in fact, we warned of this problem and others time after time. For proof go back and see these articles:
- September 23, 2008: “No More Bailouts!”
- September 30, 2008: “Bailout Burns”
- October 2, 2008: “Economy in the Balance: How the bailout is polluting out financial future“
- October 17, 2008: “Financial Losses Seen and Unseen: The bailout and the broken window“
- October 28: 2008: “Too Big to Fail: The government should send the message that no more bailouts are coming“
And we continue to argue that bailouts only perpetuate the cycle of bad business models and that only when firms are allowed to fail will necessary change come to Wall Street.