by Adam Tooze
14. K. Kelly, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street (New York: Portfolio, 2009). For an account from inside Paulson’s Treasury, see P. Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity (Spring 2009), 1–63.
15. On the invocation of 13(3), see Wallach, To the Edge, 46–49.
16. P. Coy, “Volcker Shuns the Blame Game,” Bloomberg Businessweek, April 10, 2008, https://www.bloomberg.com/news/articles/2008-04-10/volcker-shuns-the-blame-gamebusinessweek-business-news-stock-market-and-financial-advice.
17. W. Poole, “Moral Hazard: The Long-Lasting Legacy of Bailouts,” Financial Analysts Journal 65, no. 6 (2009), 17–23; J. H. Cochrane, “Lessons from the Financial Crisis,” Hoover Institution, January 11, 2010; and V. Reinhart, “A Year of Living Dangerously: The Management of the Financial Crisis in 2008,” Journal of Economic Perspectives 25 (2011), 71–90.
18. W. S. Frame, “The 2008 Federal Intervention to Stabilize Fannie Mae and Freddie Mac” (Federal Reserve Bank of Atlanta Working Paper 2009-13, April 2009); and W. S. Frame, A. Fuster, J. Tracy and J. Vickery, “The Rescue of Fannie Mae and Freddie Mac,” Federal Reserve Bank of New York Staff Reports 719 (March 2015).
19. B. Setser, “Too Chinese (and Russian) to Fail?”
20. T. Ferguson and R. Johnson, “Too Big to Bail: The ‘Paulson Put,’ Presidential Politics, and the Global Financial Meltdown: Part 1: From Shadow Financial System to Shadow Bailout,” International Journal of Political Economy 38 (2009), 3–34.
21. Swagel, “The Financial Crisis.”
22. Paulson, On the Brink, 151.
23. D. W. Drezner, “Bad Debts: Assessing China’s Financial Influence in Great Power Politics,” International Security 34 (2009), 34.
24. Peston, “Russia ‘Planned Wall Street Bear Raid.’”
25. Paulson, On the Brink, 152.
26. Ibid., 153.
27. C. Hulse, “Behind a G.O.P. Revolt, Ideology and Politics,” New York Times, July 26, 2008.
28. G. Farrell, Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America (New York: Crown Business, 2010).
29. Sorkin, Too Big to Fail, 348.
30. Ball, “The Fed and Lehman Brothers.”
31. Geithner, Stress Test, 190. The best academic defense of the Paulson-Geithner-Bernanke position is W. Cline and J. Gagnon, “Lehman Died, Bagehot Lives: Why Did the Fed and Treasury Let a Major Wall Street Bank Fail?,” Peterson Institute for International Economics No. PB13-21, 2013.
32. Bernanke, Courage to Act, 288.
33. Wall Street Journal staff, “Barney Frank Celebrates Free Market Day,” Wall Street Journal, September 17, 2008.
34. Swagel, “Financial Crisis,” 41.
35. Editorial, “Wall Street Casualties,” New York Times, September 15, 2008.
36. Editorial, “Wall Street Reckoning,” Wall Street Journal, September 15, 2008.
37. Geithner, Stress Test, 190.
38. T. Ferguson and R. Johnson, “Too Big to Bail,” 5–45; and Ball, “The Fed and Lehman Brothers.”
39. A. Darling, Back from the Brink: 1000 Days at Number 11 (London: Atlantic Books, 2011), 121–122.
40. For this and the following, see Congressional Oversight Panel, “The AIG Rescue, Its Impact on the Markets and the Government’s Exit Strategy.”
41. Swagel, “The Financial Crisis,” 1–63.
42. R. Sidel, D. Enrich and D. Fitzpatrick, “WaMu Is Seized, Sold Off to J.P. Morgan, in Largest Failure in US Banking History,” Wall Street Journal, September 26, 2008.
43. “Text of Draft Proposal for Bailout Plan,” New York Times, September 20, 2008.
44. For the memo, see N. Kashkari and P. Swagel, “‘Break the Glass’ Bank Recapitalization Plan,” US Treasury Department; and Sorkin, Too Big to Fail, chapter 5, http://www.andrewrosssorkin.com/?p=368.
45. Swagel, “The Financial Crisis.”
46. P. Mason, Meltdown: The End of the Age of Greed (London: Verso, 2009), 22.
47. M. Landler and S. L. Myers, “Buyout Plan for Wall Street Is a Hard Sell on Capitol Hill,” New York Times, September 23, 2008.
48. C. Isidore, “Bailout Plan Under Fire,” CNN Money, September 23, 2008.
49. G. Robinson, “Never Underestimate the Power of Populist Scare-Mongering,” Financial Times, September 30, 2008.
50. “Bernanke, Paulson Face Skeptics on the Hill Despite Dire Warnings,” Wall Street Journal, September 24, 2008.
51. Cited in Wallach, To the Edge, 85.
52. W. Buiter, “The Paulson Plan: A Useful First Step but Nowhere Near Enough,” CEPR, September 25, 2008, http://voxeu.org/article/paulson-plan-useful-first-step-nowhere-near-enough.
53. Mason, Meltdown, 33.
54. From contrasting political perspectives this is the common refrain of R. Suskind, Confidence Men: Wall Street, Washington, and the Education of a President (New York: HarperPerennial, 2011); C. Gasparino, Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street (New York: Portfolio, 2010); and R. Kuttner, A Presidency in Peril (White River Junction, VT: Chelsea Green Publishing, 2010).
55. C. Hulse, “Conservatives Viewed Bailout Plan as Last Straw,” New York Times, September 26, 2008.
56. Paulson, On the Brink, 288; and Bernanke, Courage to Act, 320.
57. M. Langley, “As Economic Crisis Peaked, Tide Turned Against McCain,” Wall Street Journal, November 5, 2008.
58. H. M. Paulson, “When Mr. McCain Came to Washington,” Wall Street Journal, February 6, 2010.
59. C. Hulse and D. Herszenhorn, “Defiant House Rejects Huge Bailout; Next Step Is Uncertain,” New York Times, September 29, 2008.
60. A. Twin, “Stocks Crushed,” CNN Money, September 29, 2008.
61. L. Elliot, J. Treanor, P. Wintour and S. Goldenberg, “Bradford & Bingley: Another Day, Another Bail-out,” Guardian, September 28, 2008.
62. Y. Melin and P. Billiet, “Le scandale Fortis, une histoire belge,” La Revue, January 16, 2009.
63. C. Schömann-Finc, “Skandalbank HRE: Wie Ackermann Merkel in der Rettungsnacht über den Tisch zog,” Focus Money, September 16, 2013.
64. F. O’Toole, Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger (London: Faber & Faber, 2009).
65. S. Carswell, Anglo Republic: Inside the Bank That Broke Ireland (London: Penguin, 2011).
66. Darling, Back from the Brink, 143.
67. Ibid., 144.
68. Gammelin and Löw, Europas Strippenzieher, 59.
69. L. Phillips, “France and Germany at Odds over EU ‘Paulson Plan,’” EU Observer, October 2, 2008.
70. E. Cody and K. Sullivan, “European Leaders Split on Rescue Strategy,” Washington Post, October 3, 2008.
71. Munchau, Meltdown Years, 136.
72. DPA, “Banken fordern Hilfe von der EU: Deutsche Banker warnen vor einem europäischen ‘Flickenteppich,’” Zeit Online, October 2, 2008.
73. D. Gow, “Greece’s Deposit Guarantee Deepens EU Financial Rift,” Guardian, October 2, 2008.
74. G. Brown, Beyond the Crash (New York: Free Press, 2010), Kindle location 924.
75. A. Seldon and G. Lodge, Brown at 10 (London: Biteback Publishing, 2011), footnote 148, Kindle locations 5686–5688
76. C. Bastasin, Saving Europe: Anatomy of a Dream (Washington, DC: Brookings, 2015), 15.
77. Gammelin and Löw, Europas Strippenzieher.
78. Deutscher Bundestag 16. Wahlperiode, Beschlussempfehlung und Bericht des 2. Untersuchungsausschusses nach Artikel 44 des Grundgesetzes Drucksache 16/14000 (Berlin, 2009).
79. D. Goffart, Steinbrück—Die Biografie (Munich: Heyne, 2012), 191.
80. Seldon, Brown at 10, Kindle locations 5706–5710.
81. Paulson,
On the Brink, 332–333.
82. A. Smith and M. Arnold, “Here Is the Big Reason Banks Are Safer Than a Decade Ago,” Financial Times, August 22, 2017.
83. R. Perman and A. Darling, Hubris: How HBOS Wrecked the Best Bank in Britain (Edinburgh: Birlinn, 2012).
84. Seldon, Brown at 10, Kindle locations 6856–6861.
85. FSA, “The Failure of the Royal Bank of Scotland,” Financial Services Board Report (December 2011). The final cash outlays for the RBS rescue of £115 billion (138 billion euros) would make it the largest bailout on record. Schelkle, The Political Economy of Monetary Solidarity, 171.
86. D. Lin, “Bank Recapitalizations: A Comparative Perspective,” Harvard Journal on Legislation 50 (2013), 513–544.
87. C. Binham, “Barclays and Former Executives Charged with Crisis-Era Fraud,” Financial Times, June 20, 2017.
88. P. Krugman, “Gordon Does Good,” New York Times, October 12, 2008.
89. D. Wessel, In Fed We Trust, Ben Bernanke’s War on the Great Panic (New York: Crown, 2009), 235.
90. Darling, Back from the Brink, 192 (Kindle edition).
91. Seldon, Brown at 10, Kindle location 5946.
92. A. Sutton, K. Lannoo and C. Napoli, Bank State Aid in the Financial Crisis: Fragmentation or Level Playing Field? (Brussels: CEPS, 2010).
93. G. Brown, Beyond the Crash: Overcoming the First Crisis of Globalization (New York: Free Press, 2010), Kindle locations 1125–1128.
94. N. Clark and D. Jolly, “French Bank Says Rogue Trader Lost $7 Billion,” New York Times, January 25, 2008.
95. Summarizing the important conclusions of C. Woll, The Power of Inaction. See also E. Grossman and C. Woll, “Saving the banks: The political economy of bailouts,” Comparative Political Studies 47.4 (2014): 574–600.
96. On the politics of the German bailouts, see L. Müller, Bank-Räuber: Wie kriminelle Manager und unfähige Politiker uns in den Ruin treiben (Berlin: Econ Verlag, 2010).
97. T. Braithwaite, K. Scannell and M. Mackenzie, “Deutsche Bank Whistleblower Spurns Share of $16.5m SEC Award,” Financial Times, August 18, 2016.
98. Spiegel staff, “Germany’s Faltering Bank Bailout Program: The Bottomless Pit—Part II: A Waste of Taxpayers’ Money,” Der Spiegel, December 23, 2008.
99. Taibbi, “Secrets and Lies of the Bailout.”
100. Paulson, On the Brink, 333.
101. Reuters staff, “Paulson Gave Banks No Choice on Government Stakes: Memos,” Reuters, May 13, 2009.
102. Wessel, In Fed We Trust, 240; and Paulson, On the Brink, 365.
103. Kuttner, Presidency in Peril, 121.
104. Gammelin and Löw, Europas Strippenzieher, 57.
105. In unabashed celebration of Carl Schmitt, see E. Posner and A. Vermeule, The Executive Unbound: After the Madisonian Republic (Oxford: Oxford University Press, 2011). For Schmitt on economic emergency see W. E. Scheuerman, “The Economic State of Emergency,” Cardozo Law Review 21 (1999), 1869.
106. On the difficulty in locating sovereignty even when the exception is declared see J. White, “Emergency Europe,” Political Studies 63.2 (2015), 300–318.
107. P. Swagel, “The Financial Crisis,” 1–78.
108. S. M. Davidoff Solomon, “Uncomfortable Embrace: Federal Corporate Ownership in the Midst of the Financial Crisis,” Minnesota Law Review 95 (2011), 1733–1778.
109. Even in the UK case, the management of the new, state-owned bank assets was handed off to an unpolitical agency, the UK Financial Investments Ltd, to hold them at arm’s length from the Treasury. P. Burnham, “Depoliticisation: Economic Crisis and Political Management,” Policy & Politics 42.2 (2014), 189–206.
110. P. Veronesi and L. Zingales, “Paulson’s Gift” (NBER Working Paper 15458, October 2009).
111. Lin, “Bank Recapitalizations,” 513–544.
112. Bair, Bull by the Horns, Kindle locations 142–143.
113. Special Inspector General for the Troubled Asset Relief Program, “Extraordinary Financial Assistance Provided to Citigroup, Inc.,” Washington, DC: Office of SIGTARP, January 13, 2011.
114. B. Bernanke, “Acquisition of Merrill Lynch by Bank of America,” Congressional Committee on Oversight and Government Reform, June 25, 2009. BofA did not in the event activate the ring-fence loss protection agreement. Kuttner, Presidency in Peril, 144–146.
115. D. Dayen, “The Most Important WikiLeaks Revelation Isn’t About Hillary Clinton,” New Republic, October 14, 2016. J. Podesta, “Fw: Huffpost: The Obama Test: Personnel Is Policy,” WikiLeaks, Podesta Emails, October 25, 2008.
116. C. Rampell, “Christina D. Romer,” New York Times, November 25, 2008.
117. For a devastating report, see M. Taibbi, “Obama’s Big Sellout: The President Has Packed His Economic Team with Wall Street Insiders,” Common Dreams, December 13, 2009.
CHAPTER 8: “THE BIG THING”: GLOBAL LIQUIDITY
1. Gillian Tett, “ECB injects €95bn to Help Markets,” Financial Times, August 9, 2007.
2. Irwin, The Alchemists, 43–73.
3. McGuire and von Peter. “The US Dollar Shortage.”
4. N. Baba and F. Packer, “From Turmoil to Crisis: Dislocations in the FX Swap Market Before and After the Failure of Lehman Brothers” (BIS Working Paper 285, July 2009).
5. Transcript of the FOMC meeting, September 16, 2008.
6. W. A. Allen and R. Moessner, “Central Bank Co-operation and International Liquidity in the Financial Crisis of 2008–9” (BIS Working Paper 310, May 2010).
7. M. Obstfeld, J. C. Shambaugh and A. M. Taylor, “Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008” (NBER Working Paper No. 14826, January 2009).
8. R. Marino and U. Volz, “A Critical Review of the IMF’s Tools for Crisis Prevention” (DIE Discussion Paper, April 2012).
9. Transcript of the FOMC meeting, October 28–29, 2008.
10. Wessel, In Fed We Trust, 140.
11. J. L. Broz, “The Federal Reserve as Global Lender of Last Resort, 2007–2010,” International Political Economy Society, University of Virginia, November 9–10, 2012.
12. T. Adrian and H. S. Shin, “Prices and Quantities in the Monetary Policy Transmission Mechanism,” International Journal of Central Banking 5, no. 4 (2009), 131–142.
13. L. Randall Wray, “Bernanke’s Obfuscation Continues: The Fed’s $29 Trillion Bail-Out Of Wall Street,” Huffington Post, December 14, 2011.
14. A useful reference is James Felkerson, “$29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient,” Levy Economics Institute (Working Paper 698, December 2011).
15. A. Berger, L. K. Black, C. H. Bouwman and J. Dlugosz, “Bank Loan Supply Responses to Federal Reserve Emergency Liquidity Facilities,” Journal of Financial Intermediation 32 (October 2017), 1–15.
16. E. Benmelech, “An Empirical Analysis of the Fed’s Term Auction Facility” (CATO Papers on Public Policy, Working Paper 18304, 2012): 57–91.
17. T. Adrian, C. R. Burke and J. J. McAndrews, “The Federal Reserve’s Primary Dealer Credit Facility,” Current Issues in Economics and Finance 15, no. 4 (2009), 1.
18. M. D. Bordo, O. F. Humpage and A. J. Schwartz, “The Evolution of the Federal Reserve Swap Lines Since 1962,” IMF Economic Review 63, no. 2 (2015), 353–372. On the development of the United States as a global lender of last resort since the 1960s see D. McDowell, Brother Can You Spare a Billion? The United States, the IMF, and the International Lender of Last Resort (Oxford: Oxford University Press, 2016).
19. FOMC meeting, October 28–29, 2008, https://www.federalreserve.gov/monetarypolicy/files/FOMC20081029meeting.pdf.
20. Perhaps the first outside commentator to realize their significance was P. Mehrling, “Understanding the Fed’s Swap Line,” Financial Times, November 18, 2008, http://blogs.ft.com/economists
forum/2008/11/254/. He was followed by M. Obstfeld, J. C. Shambaugh and A. M. Taylor, “Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008,” American Economic Review 99 (2009): 480–486; D. McDowell, “The US as ‘Sovereign International Last-Resort Lender’: The Fed’s Currency Swap Programme During the Great Panic of 2007–09,” New Political Economy 17.2 (2012), 157–178; J. L. Broz, “The Politics of Rescuing the World’s Financial System: The Federal Reserve as a Global Lender of Last Resort” (November 20, 2014), Korean Journal of International Studies 13 (August 2015), 323–351.
21. For a recent example, see “US Dollar-British pounds swap agreement,” January 16, 2014, https://www.newyorkfed.org/medialibrary/media/markets/USD_Pound_swap_agreement.pdf.
22. Wessel, In Fed We Trust, 141.
23. Conference call, FOMC, October 7, 2009, https://www.federalreserve.gov/monetarypolicy/files/FOMC20081007confcall.pdf.
24. Conference call, FOMC, December 6, 2007, https://www.federalreserve.gov/monetarypolicy/files/FOMC20071206confcall.pdf.
25. Helleiner, Status Quo Crisis, 36.
26. FOMC meeting, October 28–29, 2008.
27. The fourteen were the ECB, SNB, Bank of Japan, Bank of England, Bank of Canada, Reserve Bank of Australia, Sveriges Riksbank, Norges Bank, Danmarks Nationalbank, Reserve Bank of New Zealand, Banco Central do Brasil, Banco de Mėxico, Bank of Korea, and Monetary Authority of Singapore. See M. J. Fleming and N. J. Klagge, “The Federal Reserve’s Foreign Exchange Swap Lines,” Current Issues in Economics and Finance 16 no. 4 (2010), 1.
28. Irwin, The Alchemists, 169.
29. “No One Telling Who Took $586 Billion in Swaps with Fed Condoning Anonymity,” Bloomberg, December 11, 2011; and “Alan Grayson & Ben Bernanke,” CSPAN, July 21, 2009, https://www.youtube.com/watch?v=n0NYBTkE1yQ.
30. FOMC meeting, October 28–29, 2008.
31. Irwin, The Alchemists, 154.
32. K. Karlson, “Checks and Balances: Using the Freedom of Information Act to Evaluate the Federal Reserve Banks,” American University Law Review 60 (2010), 213.
33. J. Anderlini, “China Calls for a New Reserve Currency,” Financial Times, March 23, 2009; and UN, “Report of the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System,” New York, 2009.