A new book by Reinhart and Rogoff, “This Time Is Different”, makes a well researched case that over hundreds of years, not much really changes no matter what the crisis. It is never really different. I believe in many ways we can say the same for the past decade, and what we see happening now.

Although many strongly believe that letting Lehman fail was a terrible mistake, I disagree. It was absolutely the right decision and was needed. Had Lehman been subsidized and carried on the backs of the taxpayers, so would we have had to do the same for Merrill and others in a series of one off patchwork bandages. It would not have worked in the end, and there would have been a massive political backlash far worse than what Obama and Barney Frank have wrought. TARP was also the right thing, in that it was needed to save the system as a whole, instead of a lot of piecemeal fixes which would have failed in the end. We absolutely would have had a complete catastrophe without it. The politicians now campaign against TARP, they love to say it was a bailout of the fat cats on Wall St. In fact it was a bailout of the Main St banking system as we see from the fact that the taxpayers have been fully repaid by the big banks at a profit, and it is the small banks that still can’t repay.

By letting Lehman go under, Paulson and Bernanke forced the whole world to finally deal with the reality of the massive bubble we all had created. I have no idea if they did let it go intentionally or not, but their decision to do so was heroic under incredible pressures. There is a massive political blame game going on now pointing at Wall St, the US financial markets, subprime, and those of us who played a role in the bubble. The reality is everyone is to blame, and we will do it all again in ten or twenty years. While the details will be different, the basic cycle will be the same.