Was Giamatti's Speech True?

YUP

And one of the biggest reasons our recession is still going on is because the banks still aren't lending much money. The lack of flowing capital slows the whole market and financial system down.

Check out my film: http://vimeo.com/23181301

ben bernanke would never give a speech in that context. that was a riff on his book 'essays on the great depression'.




Just put it on the Underhill's tab.

In theory, what he says could have been true - an almost total freeze on short-term credit and operating lines of credit would very well result in no bread being on the stores shelves in a few months. The resulting Depression would likely be worse than the one in 1930's.

Every major business (even the cash-rich ones like Apple and IBM) in the country (and world) rely on short-term and revolving lines of credit to do things like make payroll, purchase raw materials, pay to ship their goods etc., etc. and if that credit suddenly and completely dried up there would be economic chaos that would make what happened in the Fall of 2008 seem like a walk in the park.

It would be a massive chain reaction, the grocery store couldn't pay their distributor and utility bills, the trucking company couldn't purchase fuel, almost no one could pay their employees and so on and so on. Everything as we know it would grind to a halt in short order.

And even those with cash wouldn't be immune. The resulting hyperinflation would make their cash far, far less valuable (think the German Mark during the Weimar Republic in the early 1920's when people were buying food with 5 Million Mark Bank Notes).

In theory I agree with letting the market deal with problems naturally and nothing should be too big to fail and that the weakest of these banks and firms should have been left to bankruptcy like any other business would have. But in the major banking industry, when banks A and B go bankrupt, that would almost certainly cause banks C, D, E, F etc., etc. to fail as well resulting in what I discussed above. So I think the bank bailout and TARP were necessary evils at the time. The subsequent bailouts of other industries combined with massive increases in deficit spending for the sake of "economic stimulus" were ill-advised and have led to a much longer recession and an anemic and sputtering recovery (if it is even appropriate to use the word "recovery" to describe our present economy).

[deleted]