Each Crisis is Different and all Crises Are the Same

The global credit crisis is entering its fifteenth month. This crisis is different in its origins, but its contours are familiar to anyone who was watched such crises over the past several decades or to anyone who has studied the history of earlier crises. Those regularities include the replacement of greed by fear and the slow adjustment by policy makers as they gradually recognize that rules have to be broken.

Anna Gelpern, visiting fellow at the Peterson Institute, writes today (Friday) in The Record of Bergen-Hackensack, New Jersey:

As each crisis arrives, policy makers express ritual shock, then proceed to break every rule in the rulebook. The alternative is Unthinkable. When the worst has passed, participants renounce crisis apostasy and pledge to hold firm next time…. Crisis containment is different from crisis prevention, crisis resolution, and peacetime regulation. It may feel like chaos, but emergencies have their own regularities. Knowing that crises will return, rules will be suspended, and emergency tools will be used, should prompt a public debate over when, how, and to whose benefit. It should start before, and continue after, the emergency has passed. (read full op-ed)

So we are in a position of déjà vu (all over again), and the politicians and economists sitting comfortably on the sidelines lob criticisms at those trying to contain the crisis in the name or the tax payers, moral hazard, intellectual superiority or baser motives. In our Internet age, they are the pre-Monday morning quarterbacks who cannot be held responsible for their actions.

It may have been a mistake for Secretary Paulson to ask Congress for another almost blank check. It may have been a mistake for Chairman Bernanke to support the Paulson plan. But at this point in this crisis, the alternative of doing nothing, or debating whether there is a better way, more than likely will increase the economic costs to the country and the financial costs to the US taxpayer. That is the lesson of history as I have lived it and that Anna Gelpern describes.