Additional Perspectives on the Causes of the Fiscal Crisis

Without minimizing the impact of Wall Street on our and the world's fiscal collapse, it was most interesting to read the viewpoint of Ricardo Caballero who heads the MIT Economics Department. His perspective is that foreign nations sought our financial instruments to invest their tons of available cash. The demand on the US banks was overwhelming. While not minimizing our involvement, he cited the foreign demand for "safe" investments, e.g., bonds, that resulted in the expansion of the debt obligations.

I have agreed with Sheila Bair and Alan Greenspan that any bank that is too big to fail, is too big! However, another view (Andrew Sorkin) is that we need big banks to finance major expansion projects, e.g. Verizon's project to place Fios cables in as many houses as possible. Trying to finance such a project without big banks would require multiple loans from multiple banks. This surely will be a negative force in the economy. As long as there is a method to address big bank failures, e.g., resolution authority, the bank failure would not require tax payer monies.

While I have to leave the strength of his argument to those more well versed in economics, it does go to show that we have to keep reading to be sure that we get the whole picture.