Umair: While I think you made some good points here, I’m not sure Ms. Warren (or anyone else) really knows how to fix this mess.
I wasn’t a fly on the wall in the Oval Office in 2009, but here is how the conversation went:
Mr. Obama: You big banks made some big mistakes. You deserve to fail.
Mr. Banker: Speaking on behalf of the most of the industry, we are too big to fail.
Mr. Obama: Business failure is the American way. New better-run banks will come from your ashes.
Mr. Banker: Remember we own the Federal Reserve. If you don’t bail us out, we can turn this recession to a full blown depression — and lay all the blame on you. History will not be kind to your legacy. Do things our way.
Mr. Obama: OK
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I can’t see Ms. Warren resisting those forces — even if she understands how central banks work.
You may indeed be right that Mr. Haque and I do not understand economics very well. But we don’t have confidence that the people at the controls really don’t know what they are doing. The 2008 recession was caused by bankers who broke some basic tenents of good lending practices. Both Mr. Haque and I know people should not be loaned money when they can’t afford the mortgage payment — and then justify the practice with increasing real estate values. In these sense, the two of us would have been better to run the show than Mr. Greenspan.