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

Although many strongly believe that letting Lehman fail was aterrible mistake, I disagree. It was absolutely the right decisionand was needed. Had Lehman been subsidized and carried on the backsof the taxpayers, so would we have had to do the same for Merrilland others in a series of one off patchwork bandages. It would nothave worked in the end, and there would have been a massivepolitical backlash far worse than what Obama and Barney Frank havewrought. TARP was also the right thing, in that it was needed tosave the system as a whole, instead of a lot of piecemeal fixeswhich would have failed in the end. We absolutely would have had acomplete catastrophe without it. The politicians now campaignagainst TARP, they love to say it was a bailout of the fat cats onWall St. In fact it was a bailout of the Main St banking system aswe see from the fact that the taxpayers have been fully repaid bythe big banks at a profit, and it is the small banks that stillcan’t repay.

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