The nearby chart shows that the main risk indicators only took off after Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke's TARP speeches to Congress on Sept. 23 and 24—not after the Lehman failure. ....During the same time period, Obama took a commanding lead over McCain in the polls.
Why? In effect, these speeches amounted to "The financial system is about to collapse. We can't tell you why. We need $700 billion. We can't tell you what we're going to do with it." That's a pretty good way to start a financial crisis.
Thursday, October 01, 2009
New evidence on what caused the financial crisis
When did financial concern turn to panic? In the WSJ, john Cochrane and Luigi Zingales looked at interest rate spreads:After the Lehman bankruptcy there was concern but the panic did not start until the TARP bailout program was introduced. In an upcoming textbook, John Taylor and Akila Weerapana look at the SP500 and see the same pattern: panic happened only after TARP was introduced:Cochrane and Zingales explain why: