PBS recently aired a four part series on April 24 and May 1 about the origins of the 2008 financial crisis. The program did a fantastic job of detailing the history with interviews of numerous decision makers at the time. While there were several interesting themes, the most profound was the philosophical battle between the Treasury Secretary, Tim Geithner, and Obama’s economic advisors. Mr. Geithner favored bailing out banks with no strings attached while Larry Summers and Christina Romer, two of Obama’s leading economic advisors at the time, argued that banks needed to be restructured after the acute portion of the crisis had passed.
As we all know, Geithner’s view won out. As a result, the big banks have more power and size than before the crisis began and the lessons of 2008-09 have not been applied. Our fear is that the failure to restructure the big banks has and will continue to limit economic growth. Unfortunately, the opportunity to force such restructuring politically may have passed. Here’s hoping another crisis isn’t required before appropriate adjustments are made.