Once Lehman Brothers filed for bankruptcy, the facade that the banking industry showed the world cracked and subsequently shattered. The housing bubble popped, the stock market crashed, and the hope for complete deregulation was quickly dashed. Levy opens Chapter 22 with the quote, “We are fighting for liquidity,” a sentiment shared amidst the tension before the final collapse in 2008. The issue of the bank’s “illiquidity,” as the author terms it, proved fatal in the end, with 40-1 leverage proving to carry too much risk for the bank.
I believe the Obama administration represented both a continuation and a departure from this consensus. The departure comes from the American Recovery and Reinvestment Act, or ARRA, passing, which released a $787 billion stimulus package to revitalize the job market after the crash. This seems to be a way for the government to have more reach into the market, further reinforcing the departure from how it used to be. The continuation of consensus comes from the expansion and continued support of the Troubled Asset Relief Program, or TARP, which provided funds to stabilize the banks and let there be more faith in the markets. Without the TARP, the ARRA likely wouldn’t have had the effect it did at the time, since the trust in banking institutions wouldn’t have been restored at any point.
When it comes to the question of the Fed’s and Treasury’s authorities over the markets in the US, it’s important to understand their history and original purposes. The Treasury was initially established to handle the national debt after the Revolutionary War, and hence, still holds some authority over the market due to the holding of the debt. In contrast, the Federal Reserve Act of 1913 established the Fed as a way to handle the panic surrounding the banking system at the time, despite it not being able to handle Lehman in 2008. The Fed keeps its authority due to the power the banks have in financing most actions of the consumers of the country. Without security in our banking system, it’s nearly impossible to expand our markets due to consumer fear. They also hold authority over the markets on a larger scale because history has proven that Presidents tend to appoint highly intelligent people in the necessary fields to stay in charge of the Fed and the Treasury.
Will Wright 
Hi,
I was surprised to read in your blog post that Barack Obama’s administration represented a continuation and discontinuation of the conservative consensus, as this varied from what I wrote in my blog post. I wrote that Barack Obama’s administration essentially represented a discontinuation of the conservative consensus. Furthermore, I really liked how you gave a brief history of the Federal Reserve System and the US Treasury. However, I really think your blog post would have benefited from a few examples from the reading assigned for this blog post. Regardless, this blog post was a delight to read and was to the point.
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