Hank Paulson’s testimony yesterday was informative, if only because it illustrated that he himself still understands little about the origins and nature of the global crisis over which he presided. Perhaps his book, out this fall, will redeem his reputation.
A fundamental principle in any emerging market crisis is that not all of the oligarchs can be saved. There is an adding up constraint – the state cannot access enough resources to bail out all the big players.
The people who control the state can decide who is out of business and who stays in, but this is never an overnight decision written on a single piece of paper. Instead, there is a process – and a struggle by competing oligarchs – to influence, persuade, or in some way push the “policymakers” towards the view:
- My private firm must be saved, for the good of the country.
- It must remain private, otherwise this will prevent an economic recovery.
- I should be allowed to acquire other assets, opportunities, or simply market share, as a way to speed recovery for the nation.
Who won this argument in the US and on what basis? And have the winners perhaps done a bit too well – thinking just about their own political futures?