Morning Edition introduced a piece that reported on the House Financial Services Committee plans to deal with too big to fail banks by telling listeners that we had a choice last fall between allowing huge financial institutions to fail, with substantial risks to the economy, or give them hundreds of billions of dollars to keep them afloat. This is not true, we could have given them money and totally transformed them by slashing pay for their executives (push into the six figures, from seven and eight figures) and change the way they do business. We could have ended many of the speculative practices of these firms and make them more boring. This option was generally ignored by the media at the time and it is still largely being ignored. The piece itself forget to mention that the regulators failed to see the housing bubble. In making plans for new and complex regulatory structures, it is important to remember that our team of regulators all claimed to believe that nationwide house prices could not fall. If this was actually true, then banks were not taking excessive risks and the regulators acted properly. The problem was not the lack of the right regulatory agencies, the problem was the failure of regulators to correctly understand the economy. NPR did not discuss the housing bubble at the time and it is still not accurately presenting the crisis caused by its collapse to its listeners.
--Dean Baker
