Having chosen to save Wall Street at the expense of the real economy, the Committee to Save the Banks has had to defend this indefensible decision.  Why do I say the decision was indefensible?  Everyone knows (or at least those who have read this blog):

Specific banks like Goldman Sachs and JP Morgan need the US, but the US financial system is designed so it doesn’t need the existing specific banks.

This point is very important.  During the Great Depression, the financial system was redesigned to protect depositors and the payment system.  It did this with a deposit guarantee.

This guarantee automatically makes the taxpayers the silent equity partner of any insolvent bank.

With taxpayers as their silent equity partners, the banks can remain open indefinitely.  The payment system continues functioning.  Loans are made to support the real economy.

When, and only when, it is ready, the government can step in and takeover the insolvent bank.  The specific bank goes out of existence.  However, its good assets, its deposits and its role in the payment system continue on and are conveyed to one or more new or existing banks.

Confirmation this is how the financial system was designed to work was provided by the Savings and Loans in the US.  They went bust by the middle of the 1980s.  However, they continued to operate well into the late 1980s before being taken over by the government.

It is this point that makes the decision not to handle Wall Street like the Savings and Loans indefensible from the get go.  Of course, this doesn’t stop the Committee from trying to defend their actions.

Perhaps the most offensive claim the Committee makes in defending its action was uttered by Tim Geithner when he said:

We did save the economy, but we lost the country doing it.

It is offensive because it is so obviously false.

They didn’t save the economy.  They saved the specific Wall Street firms.  There is a world of difference between the economy and these firms (although when you make as much money as the members of the Committee have made off of Wall Street it is hard to tell the difference).

As Nobel prize winning economist discovered a decade after the acute phase of the Great Financial Crisis, what saved the real economy were the automatic stabilizer programs that were put in place in the 1930s and supplemented in the 1960s.

The comment also smacks of whining.  Mr. Geithner suggests it was unfair for the country to think the financial system should have been used as it was designed and the specific firms and bankers making up Wall Street suffer the consequences of their actions.