A certain strand of the conventional wisdom on the financial crisis is expressed by Bill Gates in a new post on the Microsoft founder's Web site. "The key players – particularly Bernanke but also Paulson – did a great job handling this crisis," Mr. Gates says, echoing his friend Warren Buffett's claim that Federal Reserve Chairman Bernanke, Treasury Secretary Paulson, and Treasury Secretary Geithner are "heroes." A counter-indicator comes in the latest data from the Federal Deposit Insurance Corporation, which reports that "At the end of December, there were 702 insured institutions on the 'Problem List,' up from 552 on September 30." What's more, "Forty-five institutions failed during the fourth quarter, bringing the total number of failures for the year to 140, the highest annual total since 1992." And, "Insured banks and thrifts charged off $53.0 billion in uncollectible loans during the quarter, up from $38.6 billion a year earlier." Banks are lending less: "This is the sixth consecutive quarter in which the industry's loan balances declined. Loans to commercial and industrial (C&I) borrowers declined by $54.5 billion (4.3 percent) and real estate construction and development loans declined by $41.5 billion (8.4 percent)."
If all these guys are such heroes and doing such a good job, why are more banks in trouble or failing? Why are more debtors defaulting? Why is it harder to borrow money? And why is the unemployment rate still double what it was before all the heroics began? And that doesn't even mention the inflation or taxes that will be necessary to pay for all these heroics.
The defenders of the "heroes" always say it could have been worse. Well, maybe. But it could have been better, too. As Lawrence Summers says, there is "the difficulty of constructing a counterfactual and knowing what would have happened without intervention."
That's not to say that there are no positive signs. The FDIC release makes much of the fact that bank profits are starting to come back, though it doesn't really deal with the question of survivorship bias, that is, the skewing of the comparison by the fact that some of the loss-producing banks from last year are no longer in business. There have been some positive reports on GDP growth. Still, the whole episode seems to me to set a pretty low standard as a definition of what constitutes "heroes" or a "great job."