“In truth, markets had been trying to work since 1984, with Continental Illinois, desperately sending signals that the modern financial system was shot through with untenable risks that required a renewal of long-held regulatory principles. But government bailouts thwarted real market information at every turn. Washington allowed failure only when it didn’t threaten systemic risk, as in the case of Enron, and did not learn the subtler lessons that such failure provided.”

From After the Fall:  Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas

“Could free markets have sorted out the mess without extraordinary government action? Yes, but only by destroying the remains of the financial system and possibly putting tens of millions of people out of work. Despite virulent public opposition to the Bush bailouts, society would not have tolerated the price that a sudden free-market correction of decades of financial excess would have exacted. The consequences of standing by while the markets did their work, correcting their own and government’s mistakes, would have been disastrous.”

“The administration’s response may have staved off depression, though that outcome is not assured. But the government has severely damaged four elements upon which free markets and the future well-being of the nation depend: prices, disclosure, failure, and fairness. Lawmakers and regulators have harmed the faith of global investors and regular citizens alike in American free markets- a faith essential to growth and progress. President Obama has made the problems worse.”

From After the Fall:  Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas

If you have to read only one book about the recent financial  fiasco, this is it.

“Despite elite concerns of a public backlash against capitalism, it has been the public, not Wall Street or Washington, that has supported capitalism all along.  Financiers were disconcertingly quick to run straight into the governments arms, while the public has stuck up for markets and fought against taxpayer subsidy of failure. The hope for free markets is “political constraint,” says former St. Louis Fed president William Poole.”

“The public intuitively grasps unfairness when it sees it. In poll after poll, citizens have opposed bailout after bailout, not just for the banks but for their own neighbors.  This opposition is not a reflection of a heartless and mindless populism. Ordinary people understand that bailouts have perversely punished individuals and companies that acted responsibly, creating an incentive to act irresponsibly in the future.  They can perceive the difference between a government that acts as an honest, transparent referee of competitors and one that acts as a guarantor of perceived favorites.”

From After the Fall:  Saving Capitalism from Wall Street- and Washington by Nicole Gelinas