Here in its entirety is the Frontline episode from Tuesday, June 16th, called Breaking the Bank. It’s a nicely dramtic telling of the events that shook the banks and the world markets. It’s also a very clear exposition of the fundamental change that occurred in the collapse of Wall Street in late 2008. Essentially, the government is now in charge.
The episode contains the usual wonderful stuff from Simon Johnson, to the effect that we really kind of went ahead and nationalized the banks back around the time of the Lehman bust, and the government-brokered acquisition of Merril by Bank of America.
Entertaining and enlightening. Below the fold is more from Simon Johnson, in the full transcript of his background interview the Frontline people did with him preparing the show. Johnson’s perspective really is valuable, and resonates quite soundly with me. I think he’s worth reading. Here’s the show:
Simon Johnson in his interview with Frontline provides a very good overview of events of the last year, from his banking-crisis worldview. Here’s an excerpt.
Q. You’re talking about the Oct. 14 meeting when Paulson picks up the phone on the Sunday and says to the nine big banks, “I’m your new partner.” Was it sort of the crossing of the Rubicon for both Paulson personally and the federal government, getting in the business of the banks?
A. I think we nationalized the banks in the U.S. on that day. Seriously — substantially nationalized them. The government got a lot of say in how they’re run, a lot of constraints, a lot of responsibilities. A lot of downside risk was taken on that day. It wasn’t full nationalization. We didn’t get upside participation; we didn’t get to change the board of directors. We got the worst kind of nationalization, and I really don’t know how much thought went into that. I suspect rather little.
It’s amazing that Hank Paulson could go from Mr. Moral Hazard, Mr. Goldman Sachs, a private-sector kind of model to being the guy, I think, who nationalized and socialized in a very bad, unproductive way that’s hard to extricate ourselves from the U.S. banking system.
