Amos: You can add all the adjectives and smoke screens you want to your double standard but Geithnergate continues:

The Three Magi of the Meltdown

Had Paulson, Bernanke and Geithner handled Bear Stearns differently two years ago, we might have avoided Tarp, 10 percent unemployment and the Great Recession.
New York Times January 7, 2010,

Just because hindsight is 20/20 doesn’t mean we shouldn’t occasionally avail ourselves of it. The upcoming second-year anniversary of the collapse of Bear Stearns provides just such an opportunity to look back with a degree of analytical wisdom not available at the time of the firm’s shocking demise in March 2008.

The new, inescapable conclusion â€" thanks to the passage of time, of course â€" is that Wall Street and Main Street would be better off today had the power troika of Henry Paulson, Ben Bernanke and Tim Geithner (at the time, Treasury secretary, Federal Reserve chairman and president of the New York Federal Reserve, respectively) let the 85-year-old firm fail outright instead of crafting their clever rescue.

By arranging for Bear’s shareholders to get a tip â€" it turned out to be $10 a share in JPMorganChase stock at the time (worth around $9 a share these days, based on JPMorgan’s recent stock price) â€" and for Bear’s creditors to get 100 cents on the dollar for what was a bankrupt company (where creditors would likely fight for years over the carcass), these three men single-handedly sent to the market a powerful message it would all too quickly misinterpret, much to our collective peril: For the first time in the history of American capitalism, the federal government would not let a big Wall Street securities firm fail.

As painful as it may have been at that time, the Committee to Save the World, Version 2.0, could have just as easily sent a very different message, one sent to the shareholders and creditors of poorly managed companies all the time: Too bad.

You took risks you didn’t understand? Got too greedy? Took your eye off the ball? Kept in place executives and their cronies on the board of directors who should have retired or been replaced years earlier? Well, then, you are about to learn the valuable lesson of American capitalism and what it means to take stupid risks with other people’s money. You will lose your investments, your jobs and your company. Sorry about that. Stuff happens. The market understands that message loud and clear.

Instead, the message got very muddled. It is useful to remember how that happened, especially with free-market oriented Republicans like Paulson and Robert Steel, his deputy at Treasury and liaison with Wall Street. Both Paulson and Steel were former senior Goldman Sachs executives. And there is little question that before March 2008, neither man was of a mind to save a failing securities firm. Their prevailing thinking, Steel has told me, was that “depository institutions are systemically important institutions, but securities firms aren’t. A failed securities firm was not a systemic issue.â€쳌 Before March 2008, if a securities firm failed it was either liquidated or merged into a healthier business.

That view changed suddenly on the morning of March 13, after Bear Stearns’ outside counsel, H. Rodgin Cohen of the white-shoe law firm Sullivan & Cromwell, informed Steel that Bear Stearns was having serious liquidity problems and might not be able to meet its obligations â€" of around $75 billion a day â€" when they became due. In other words, the firm was bankrupt. The night before, Cohen had given the same message to Geithner, who while not Wall Street’s primary regulator â€" that job belonged to the Securities and Exchange Commission â€" was intimately familiar with the plumbing of Wall Street and knew what it could mean if Bear Stearns went belly up.

“I think I’ve been around long enough to sense a very serious problem, and this seems like one,â€쳌 Cohen recalled telling Geithner. And at breakfast with Steel the next morning in Washington, Cohen told me later, he said, “There’s a chance we can work through this. But this is pretty unattractive.â€쳌 Steel has told me that after that breakfast he ducked into Paulson’s office and warned him about his growing fears. “We’re not going to know a lot more for a few hours,â€쳌 Steel told his boss, “but let’s get some people to start to think about various issues and ways to deal with this.â€쳌

In an understandable panic brought on by their collective concern that the rapid demise of Bear Stearns would rupture confidence in the global capital-markets system â€" since Bear was a counterparty on many thousands of trades the world over â€" they decided to have the Fed provide a $30 billion line of credit to the firm (using JPMorgan Chase as a conduit since Bear Stearns could not borrow directly from the Fed). But the market responded poorly to that drastic move, so a day later Paulson, Bernanke and Geithner arranged for the outright sale of Bear Stearns to JPMorgan by agreeing to have the Fed underwrite $29 billion in losses on $30 billion of Bear’s squirrelly assets that JPMorgan refused to take.

At the time, the plan seemed like a good one. Staunch the bleeding by applying a tourniquet directly to the gaping wound that was Bear Stearns, and hope the other large financial firms â€" including Lehman Brothers, Merrill Lynch and A.I.G., the global insurer, which were nothing more than Bear Stearns on steroids â€" would somehow survive. The Band-Aid worked for six months until the patients all bled out in September 2008.

In retrospect, had Bear been allowed to fail and then been liquidated, the rest of Wall Street would have immediately come to grips with the seriousness of the situation instead of dallying for six months while thinking the Feds would step in and save them, too. Chances are Lehman rather than Bear would now be part of JPMorgan; Bank of America would likely still have bought Merrill Lynch. Morgan Stanley and Goldman Sachs would probably have just skated by with their investments from Mitsubishi and Warren Buffett, respectively.

But the Panic of 2008 could have been largely avoided, and with it large chunks of the $700 billion Troubled Asset Relief Program (the Fed’s $12 trillion â€" and counting â€" pledge to buck up the financial system), the misery of 10 percent unemployment and today’s Great Recession.

Easy to say now, of course.