Thursday, June 30, 2011

Former Treasury Officials Blames Individual Home Buyers for Causing Part of the Financial Crisis

Former Assistant Secretary for Economic Policy at the Treasury Department from, December 2006 to January 2009, Phil Swagel, is out with reviews of two movies about the recent financial crisis,  Too Big to Fail and Inside Job.

He writes of TBTF the movie:
While jazzing up events within the Treasury, the movie understates the vital role played by the Federal Reserve.
So there does appear to be some sense in which Swagel understands that Fed money printing plays a role in manipulating the economy, but as we shall see he doesn't acknowledge this manipulation also caused the crisis. As far as Swagel tells the public, the Fed only does good. But he also writes he ducked an interview with the makers of  Inside Job:

I took a pass when the filmmakers called me in the spring of 2009 [to talk about the crisis].
He wasn't so lucky trying to duck me. In the Spring of 2009, I caught up with him and wrote at the time :
Swagel spoke at a luncheon today before the Washington D.C. based National Economists Club. I was there and had the opportunity to ask Swagel a couple of questions.

After his prepared remarks, I asked him...
 "Well, then let me ask you an economics question. Was there any concern at the Treasury about the slowdown in Fed money growth during the summer of 2008?"

He tried to answer with, "Well the Treasury is always in touch with the Fed and we are always monitoring every aspect of the economy."

I wouldn't let him get away with it. I pushed, "Do you know what money growth was in the summer of 2008?" His answer. "No." I pushed, again, "Do you know what money growth was in the first half of 2008?" His answer. "No."
I remind you this was the Assistant Secretary for Economic Policy at the Treasury Department during this period. Money growth dropped from a 12% annualized rate early in the year to 1.4% during the summer, in the midst of a housing crisis.

Clearly, Swagel was not at the Treasury to monitor the economy. He was a tool used to come up with the justifications for the machinations of the real insiders, e.g., Paulson.
Paulson didn't care what caused the downturn. He cared about how to shovel money to Goldman and JPMorgan. And when it comes to justifications for why all that occurred, Swagel has microscopic details.
And so, in his reviews he leaves the impression that evrybody was to blame but the Fed:
In truth, the striking feature of the crisis was how many different people committed mistakes: banks and other firms made bad loans and packaged them into subprime securities; rating agencies rubber stamped them as AAA; pension funds bought the junk assets; government officials missed the mounting problems; and so on. But surely also at fault are the multitude of individual homebuyers who turned into mini-speculators during the housing bubble
Amazingly, he fails to discuss the dominant role of the Fed in starting the crisis by pushing interest rates way below market rates and the role of the Fed in launching the downward part of the cycle when they put a brake on money printing. You see in Swagel's mind it's all because small town bankers, investors and home buyers didn't recognize the interest rate manipulations of the Federal Reserve, when he himself admitted to me he was not aware of them.

In the review, Swagel only tells us that the Fed came to the rescue, without telling us that the Fed was the prime mover behind the boom and bust.  In other worrds, the real inside job is the Swagel review, keeping the Fed role in the crisis hidden and reaching down deep to even blame homebuyers who were propagandized for decades that to buy a house was a safe investment, instead of pointing a finger at the real culprit, the Fed, and their apologists and enablers, such as Phil Swagel, himself.


  1. On the basis of this guy knowing next to nothing, do you think if I sent a resume to Hank Paulson, would he give me a cushy job too?

  2. Damn, you tore him up. Nice.

    *Get em!*

  3. "reaching down deep to even blame homebuyers"

    and Phil Swagel was there himself at all the house closings forcing people to sign their mortgage notes.