Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
66331549
label
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
66331549
sourceUrl
contentType
document
title
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
citationUrl
collections
Records of the Council of Economic Advisers (George W. Bush Administration)
Donald Marron's Files
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
66331549
levelOfDescription
fileUnit
otherTitles
t010-075-fctarpsp-2-20140222f
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
5bac26e4307ae314
ocrText
Withdrawn/Redacted Material
The George W. Bush Library
DOCUMENT FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
NO.
001
Outline
Outline on Rescue Strategy [with attachment]
11
N.D.
P5;
002
Presentation
Financial Rescue Package Options
9
10/02/2008 P5;
003
Memorandum
Guaranteeing Short-Term Debt - To: Edward Lazear -
2
10/10/2008 P5;
From: Jane Ihrig, et al.
004
Presentation
Macroeconomic Policy Response to Yen Appreciation
10
N.D.
P5;
005
Presentation
Collapse of BUBBLE: Lessons from Japan
30
12/19/2008
P5;
006
Memorandum
Cost of the Financial Rescue Operation - To: POTUS -
3
11/26/2008 P5;
From: Jane Ihrig
COLLECTION TITLE:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
13210
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
2014-0222-F
Page 1 of 2
This document was prepared on Friday, September 18, 2015
Withdrawn/Redacted Material
The George W. Bush Library
DOCUMENT FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
NO.
007
Presentation
Financial Turmoil Policy Response
13
11/04/2008
P5;
008
Memorandum
[Memo] - To: Members of the Executive Board - From:
1
08/21/2008 P1/b1;
The Acting Secretary
009
Report
[Report]
20
08/2008
P1/b1; P5;
COLLECTION TITLE:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
13210
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(I) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
2014-0222-F
Page 2 of 2
"his document was prepared on Friday, September 18, 2015
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Outline
Outline on Rescue Strategy [with attachment]
11
N.D.
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(I) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Presentation
Financial Rescue Package Options
9
10/02/2008
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Memorandum
Guaranteeing Short-Term Debt - To: Edward Lazear - From: Jane Ihrig, et
2
10/10/2008
P5;
al.
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Presentation
Macroeconomic Policy Response to Yen Appreciation
10
N.D.
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Presentation
Collapse of BUBBLE: Lessons from Japan
30
12/19/2008
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
FT.com print article
Page 1 of 2
COMMENT
FT
.com
OPINION
FINANCIALTIMES
Close
Ways to avoid another stampede
Print
By Heizo Takenaka
Published: November 13 2008 19:48 I Last updated: November 13 2008 19:48
World leaders gather on Saturday to address the global financial meltdown. They will discuss
fiscal stimulus and monetary policy, and rightly so. But Japan's bitter experience in the 1990s
proves that fiscal and monetary policies are not enough. Just as important are microeconomic
incentives such as rules for accounting, disclosure and compensation. Unless the micro incentives
are right, the macro outcome will be wrong.
In my opinion, the global financial meltdown had less to do with macroeconomic errors - although
such errors occurred - than with distorted and incompatible micro incentives. Here are 11 reforms
that will damp the tendency of financial markets to stampede.
View from the Markets
Oct 27: HEIZO TAKENAKA on lessons fr
Former Japan economy minister cale for beder
assosement of bed assets
00:00
00:00
First, adjust capital adequacy ratios to restrain the lending cycle. For example, the 4 per cent target
for the tier one capital ratio for banks might be raised to 8 per cent in booms but lowered to 3 per
cent in recessions. Cycle-dependent capital ratios would reduce the tendency of banks to lend too
generously in booms and too timidly in recessions.
Second, design performance benchmarks that discourage herd behaviour. Benchmarks usually
reward fund managers for their performance against a reference index. Such benchmarks can
trigger bubbles or stampedes. If a stock is included in the reference index and is rising, fund
managers have a strong incentive to buy - even if valuations are too high already. Requiring
absolute benchmarks (for example, seek 10 per cent, plus or minus 2 per cent, with a penalty for
deviation in either direction) might quell the herd instinct. Relative reference indices should not be
used as performance benchmarks, especially for compensation.
Third, base mark-to-market rules on the duration of liabilities. When an institution relies mostly on
long-term funding, mark-to-market of assets need not be strict or frequent. Such institutions can
take the long view, stabilise markets and raise returns for investors. However, when an institution
relies heavily on short-term funding, mark-to-market of assets must be strict and frequent.
Otherwise the capital of the institution will be vulnerable. Thus, mark-to-market rules should be
based not only on the character of individual assets, but also on the duration of the liabilities of
each institution.
Fourth, impose leverage limits to counter the funding cycle. In recent years, some financial
http://www.ft.com/cms/s/4401b86a-b184-11dd-b97a-0000779fd18c.dwp_uuid=73ad.
2008/12/19
FT.com print article
Page 2 of 2
institutions became overleveraged as a result of competitive pressures on regulators to lift leverage
limits. Such limits should be reinstated on an internationally consistent basis. When times are
good, the leverage limits should be lowered in order to prevent overshooting. When times are bad,
the limits should be raised in order to spur recovery.
Fifth, expand suitability rules to all financial sectors. These protect investors from lack of
information, inexperience and myopia. In the securities business, brokers must have a reasonable
basis for recommending a security to a customer, in light of the customer's circumstances. Similar
rules are needed across financial institutions, especially for mortgages.
Sixth, enforce cross-country consistency. In globalised capital markets, rule changes in one
country can destabilise other countries, as shown recently by changes in deposit insurance
coverage and by capital injections. Categories requiring cross-border consistency include deposit
insurance, short-selling rules, money market collateral rules and leverage limits.
Seventh, mandate the exchange of personnel between regulators and regulated institutions. Too
often, personnel in financial institutions fail to understand the regulators' viewpoints and needs.
Senior financial industry personnel should be required to have regulatory experience. Conversely,
regulators often fail to understand the pressures and incentives in financial institutions. Moreover,
regulators in one country often fail to understand rules in others. Senior regulators should be
required to have market and international experience.
Eighth, eliminate conflict of interest in the business models of rating agencies. Rating agencies are
often paid by issuers. There is therefore a temptation to give high ratings. Rating agencies may use
generous assumptions or models that are biased towards an outcome that is profitable to the
agency. Thus, agencies should be paid by investors, who will demand timely ratings that reflect
reality, and not by issuers.
Ninth, professionalise external directors. In many cases, external directors of companies are
friendly with internal board members and thus avoid making frank criticism. External board
members may lack expertise in the business or independent information on which to question staff
analysis. These problems could be solved by creating professional external directors, much like
external auditors.
Tenth, consolidate settlement of over-the-counter trading and credit default swaps. The dispersion
of OTC transactions makes it virtually impossible to follow flows. This is a particular problem in the
CDS market. Regulators and investors need a better grasp of such flows to pre-empt problems.
Contract standardisation is crucial.
Finally, standardise cross-border collateral agreements. Common rules are needed so that banks
can pledge collateral with confidence across countries and be confident that contracts are
enforceable. Absent such rules, interbank markets are more likely to freeze or stampede at the first
sign of trouble.
The writer is director of the Global Security Research Institute at Keio University. He served as
minister of economics, minister of financial reform and minister of internal affairs and
communications under prime minister Junichiro Koizumi
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy I Terms
©
Copyright The Financial Times Ltd 2008.
http://www.ft.com/cms/s/4401b86a-b184-11dd-b97a-0000779fd18c.dwp_uuid=73ad. 2008/12/19
Barry Eichengreen: The roots of the financial crisis lie in sensible policy decisions
I
C...
Page 1 of 3
LUXURY FEATURES WITHO
DRIVE WITH TOTA
GET THE DETAILS AT 0
TRAVERSE
LEARN
-
guardian.co.uk
Cif America
The best of intentions go bust
Greed and corruption didn't cause the Wall Street crisis. Its roots lie in the unintended
consequences of sound policy decisions
Barry Eichengreen
guardian.co.uk, Thursday 2 October 2008 19.30 BST
A
larger I smaller
Getting out of our current financial mess requires understanding how we got into it in
the first place. The fundamental cause, according to the likes of John McCain, was greed
and corruption on Wall Street. Though not one to deny the existence of such base
motives, I would insist that the crisis has its roots in key policy decisions stretching back
over decades.
In the US, there were two key decisions. The first, in the 1970s, deregulated
commissions paid to stockbrokers. The second, in the 1990s, removed the Glass-Steagall
Act's restrictions on mixing commercial and investment banking. In the days of fixed
commissions, investment banks could make a comfortable living booking stock trades.
Deregulation meant competition and thinner margins. Elimination of Glass-Steagall
then allowed commercial banks to encroach on the investment banks' other traditional
preserves.
In response, investment banks branched into new businesses like originating and
distributing complex derivative securities. They borrowed money and put it to work to
sustain their profitability. This gave rise to the first causes of the crisis: the originate-
and-distribute model of securitisation and the extensive use of leverage.
http://www.guardian.co.uk/commentisfree/cifamerica/2008/oct/02/wallstreet.econ. 2008/12/19
Barry Eichengreen: The roots of the financial crisis lie in sensible policy decisions
C...
Page 2 of 3
It is important to note that these were unintended consequences of basically sensible
policy decisions. Other things being equal, deregulation allowed small investors to trade
stocks more cheaply, which made them better off. But other things were not equal. In
particular, the fact that investment banks, which were propelled into riskier activities by
these policy changes, were entirely outside the regulatory net was a recipe for disaster.
Similarly, eliminating Glass-Steagall was fundamentally sensible. Conglomerates allow
financial institutions to diversify their business, and combining with commercial banks
allows investment banks to fund their operations using relatively stable deposits instead
of fickle money markets. This model has proven its viability in Europe over a period of
centuries, and its advantages are evident in the US even now with Bank of America's
purchase of Merrill Lynch.
But conglomeratisation takes time. In the short run, Merrill, like the other investment
banks, was allowed to double up its bets. It remained entirely outside the purview of the
regulators. As a stand-alone entity, it was then vulnerable to market swings. A crisis
sufficient to threaten the entire financial system was required to precipitate the
inevitable conglomeratisation.
The other element in the crisis was the set of policies that gave rise to global imbalances.
The Bush administration cut taxes. The Fed cut interest rates in response to the 2001
recession. Financial innovation, meanwhile, worked to make credit even cheaper and
more widely available. This, of course, is just the story of subprime mortgages in another
guise. The result was increased US spending and the descent of measured household
savings into negative territory.
Of equal importance were the rise of China and the decline of investment in Asia
following the 1997-1998 financial crisis. With China saving nearly 50% of its GNP, all
that money had to go somewhere. Much of it went into US treasuries and the obligations
of Fannie Mae and Freddie Mac. This propped up the dollar and reduced the cost of
borrowing for US households, encouraging them to live beyond their means. It also
created a more buoyant market for the securities of Freddie and Fannie, feeding the
originate-and-distribute machine.
Again, these were not outright policy mistakes. Lifting a billion Chinese out of poverty is
arguably the single most important event in our lifetimes. The fact that the Fed
responded quickly prevented the 2001 recession from worsening. But there were
http://www.guardian.co.uk/commentisfree/cifamerica/2008/oct/02/wallstreetecono. 2008/12/19
Barry Eichengreen: The roots of the financial crisis lie in sensible policy decisions I C... Page 3 of
3
unintended consequences. The failure of US regulators to tighten capital and lending
standards when abundant capital inflows combined with loose Fed policies ignited a
furious credit boom. The failure of China to move more quickly to encourage higher
domestic spending commensurate with its higher incomes added fuel to the fire.
Now, a bloated financial sector is being forced to retrench. Some outcomes, like the
marriage of Bank of America and Merrill Lynch, are happier than others, like the
bankruptcy of Lehman Brothers. But, either way, there will be downsizing. Foreign
central banks are suffering capital losses on their unthinking investments. As they
absorb their losses on US Treasury and agency securities, capital flows toward the US
will diminish. The US current-account deficit and the Asian surplus will shrink. US
households will have to start saving again.
The one anomaly is that the dollar has strengthened in recent weeks. With the US no
longer viewed as a supplier of high-quality financial assets, one would expect the dollar
to have weakened. The dollar's strength reflects the knee-jerk reaction of investors
rushing into US treasuries as a safe haven. It is worth remembering that the same thing
happened in August 2007, when the subprime crisis erupted. But once investors realised
the extent of US financial problems, the rush into treasuries subsided, and the dollar
resumed its decline. Now, as investors recall the extent of US financial problems, we will
again see the dollar resume its decline.
Emphasising greed and corruption as causes of the crisis leads to a bleak prognosis. We
are not going to change human nature. We cannot make investors less greedy. But an
emphasis on policy decisions suggests a more optimistic outlook. Unintended
consequences cannot always be prevented. Policy mistakes may not always be avoidable.
But they at least can be corrected. That, however, requires first looking more deeply into
the root causes of the problem.
guardian.co.uk © Guardian News and Media Limited 2008
http://www.guardian.co.uk/commentisfree/cifamerica/2008/oct/02/walstreet.econ. 2008/12/19
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Memorandum
Cost of the Financial Rescue Operation - To: POTUS - From: Jane Ihrig
3
11/26/2008
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Presentation
Financial Turmoil Policy Response
13
11/04/2008
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA IDs and Segments:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - |44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/16/2015
by erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Memorandum
[Memo] - To: Members of the Executive Board - From: The Acting
1
08/21/2008
P1/b1;
Secretary
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA ID and Segment:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/18/2015 by
erl
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Report
[Report]
20
08/2008
P1/b1; P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Marron, Donald - Subject Files
FOLDER TITLE:
Financial Crisis - TARP (Troubled Asset Relief Program) - Senate Passed [2]
FRC ID:
FOIA ID and Segment:
13210
2014-0222-F
OA Num.:
13177
NARA Num.:
13333
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(I) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 9/18/2015 by
erl