August 14, 2015
A Modest Response to Wallach
Posted by David Zaring

I'm enjoying Philip's guest blogging with us.  I think I particularly like this part of his last post:

If it sounds condescending to suggest that the government barely even thought about legitimacy issues during the last crisis, perhaps it is fitting that I end with an obligatory presentation of Wallach’s Law, which is that everything is more amateurish than you think, even after accounting for Wallach’s Law. Everything: financial crisis responding and post-response analysis are no exceptions.

At the end of my review of his book, I said:

one of the reasons I like thinking about the financial crisis, and like reading books like Wallach’s about it, is because it was an enormous almost-disaster that was averted for thousands of different, interlocking reasons. The government’s response to it was both wise, unreflective, tremendously unfair, and highly successful, and a million other things as well.

We may never sort out what exactly happened, and we'll certainly never know whether it was the best possible approach, or three removed from best, or 17, or whatever.  Given so many inputs, what can we say about the legal output?

I think we can say a few things.  First, that the law mattered, and provided constraints, even when it shouldn't have or was just used as an excuse (ahem, Lehman Bros.).  Second, one of the ways it mattered is because it cabined the government's thinking of precisely how it could get creative.  We can't save a bank through X, so let's push through a merger to save it that way.  We may never want the government too cabined in the middle of a crisis, but there is room to impose constraints afterwards, too.  So if you're inclined, for whatever reason, to look at the world through "law only" glasses, I think you can gain some useful perspectives on what happened during that hectic period six years ago.

Though, as we found out today, they're still litigating it all!

Administrative Law, Finance, Financial Crisis, Financial Institutions | Bookmark

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