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My task today is to talk about the financial crisis. I only have a short time to talk, so rather than try to give you a comprehensive analysis of events, I'm going to offer some of my own idiosyncratic takes on what has been happening. In addition, I will introduce my own small reform proposal for regulating bank risk taking. So, I'll give you a little bit of news, a little bit of weather, a little bit of everything.

Where are we now? Let us begin with a statement Henry Paulson made six months ago while Bear Steams was getting bought up by JP Morgan: "I have great, great confidence in our capital markets and in our financial institutions."1 Six months later, things start looking a little more bleak, and now we are in the business of restoring our financial institutions. That quote from Paulson came the same week that Lehman Brothers, AIG, Fannie Mae, and Freddie Mac all went down. So it was kind of a hard week for the Treasury Secretary. Just earlier this week, the Federal Government agreed to pump up AIG with an additional $30 billion in taxpayer money right after it reported literally the biggest quarterly loss in history, a $61.7 billion loss. All told, the government pumped in hundreds of billions of dollars into our financial institutions in four separate interventions, including a hundred eighty billion just to AIG over the past six months.



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