It has been along time since I’ve heard anything about David Stockman. But this analysis of the justification for the bailout (including intervening to preserve the commercial paper market) raises some excellent questions. As does his analysis of the federal budget and what the future holds.
Even if Stockman is wrong about the need for intervention in the commercial paper market, to this date I’ve not seen any definitive case made that a bailout was required beyond a limited intervention to preserve liquidity in the commercial paper system (and even that rationale may have been overstated–the link to the underlying paper seems to no longer work). I have also never seen any demonstrable evidence of any “systematically risky” institution, which seems to be an ex post label attached to any institution that the Fed decided to bail out. John Taylor has argued, for example, that even the failure of Lehman did not cause the crisis, instead it was Hank Paulson’s panicked response to Lehman that caused the crisis (see the discussion beginning at page 15 of this paper). Nevertheless, it seems that everywhere I go, I hear that the government “had” to do the bailout or the whole banking system and economy would have collapsed. That may be true–but to date that claim is simply an assertion and has not been demonstrated.