Holocaust Deniers & the Economy

“The economic crisis was phony.”
“The dangers to the economy were grossly exaggerated.”
“We over-panicked.”
“The government should have done nothing.”
“There was a conspiracy by Washington to save Wall Street fat cats.”

Such refrains are sung by a growing chorus which denies that America and the global economy were facing tsunami-scale dangers in September 2008 that only drastic, sweeping and unprecedented actions could prevent. Clearly, it is not only the Nazi’s widely-documented campaign to exterminate Europe’s Jews that can be denied by those ignoring just about every available solid fact, it is also something as current as the economic crisis of 2008, whose aftershocks we’re still painfully feeling.

Few facts.
Perhaps we shouldn’t be surprised. History testifies that there is always an audience ready to listen to contrarians and conspiracy spinners. Moreover, it’s easy (often ridiculously easy) and usually rewarding to be contrarian. A contrary argument typically needs few new facts of its own; it’s simple enough to poke holes in existing facts (though the holes are irrelevant) and to second guess decisions months after they’ve been made, when the fog of crisis has lifted and fear has faded. At that moment, of course, contrarians ignore that crisis and fear both have waned specifically because of the actions that were taken. Not ignored by them is the soapbox attention they receive for their accusatory, contrary views. A denier’s assertion almost always guarantees headlines and six-digit You Tube views.

The only antidote to the denier is repeated recollection of history and facts. While facts won’t convert or silence the denier, they do keep the rest of us anchored solidly in reality. It is thus important to recall what was happening 15 long months ago, in September 2008, when we were tossing violently about in the center of “a perfect storm,” to use Federal Reserve Chairman Ben Bernanke’s vividly accurate term, as quoted this week in his “Man of the Year” interview with Time Magazine.

In the "perfect storm," Lehman Bros workers pack-up and clear-out.

• The American and global banking system was verging on near-complete freeze-up. Not only were banks extremely reluctant to lend to even the most credit-worthy firms, they were balking at lending to each other – even overnight. Short-term loans that firms used for payrolls and to pay suppliers were drying up.

• A panicked run had begun on the $3.5 trillion money market fund industry as account holders frantically began withdrawing money. To meet this soaring demand for redemptions, money market funds would have to sell their holdings, thus driving down asset prices that already had fallen sharply.

• Lehman Brothers, the iconic investment bank, shockingly had collapsed, sending destructive waves of plummeting confidence throughout the global financial system. Potentially much worse, American Investment Group (AIG), the world’s largest insurance company, seemed poised to follow Lehman. With offices in 130 countries, with 30 million American customers and another 44 million abroad and with $500 billion in obligations (credit-default swaps) to banks and financial institutions around the world, the likely devastation was beyond calculation.

• Merrill Lynch, hemorrhaging from its huge holdings of what came to be called “toxic assets,” mainly subprime mortgages heading for default, was only at the last minute rescued from collapse by Bank of America.

• The stock market seemed to plummet endlessly, with the Dow Jones Industrial Average frequently posting triple-digit daily drops, obliterating investor portfolios and retirement accounts across the nation.

• The U.S. Federal Reserve bank and European central banks were pumping unprecedented tens of billions of dollars into the system, with little visible impact.

• The commercial-paper market, used by corporations to fund daily operations, seemed about to freeze.

• Investors were pulling so much money out of ordinarily safe (and boring) investments and parking it in short-term U.S. Treasurys that the yield on three-month Treasurys first hit zero – and then actually fell below zero. Fed Vice-Chairman Donald Kohn later told James B. Stewart, whose account of the September crisis appears in the September 21, 2009 New Yorker: “You knew there was complete panic, and it was spreading.” Adds then-New York Federal Reserve Bank president and now Treasury Secretary Timothy Geithner in his interview with Stewart: “It’s hard to describe how bad it was.”

“Catastrophic.”
In short, as Bernanke told Time Magazine, “Virtually every large financial firm in the world was in significant danger of going bankrupt…I knew that the implications of that for the global economy would be catastrophic. We would be facing, potentially, another depression of the severity and length of the Depression in the 1930s. And that this was not at all hypothetical.”

Nonsense, retort the deniers, remaining steadfast in their heated denials. There was no Holocaust. Roosevelt knew all along about the Japanese attack on Pearl Harbor. Eisenhower botched D-Day. Last year’s economic crisis wasn’t really a crisis and certainly didn’t need massive government intervention.

Wrong, declares history. Wrong. Wrong. And again wrong

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