Ten years and a lost generation ago
by Tom Sullivan
Lehman Brothers headquarters in New York City on September 15, 2008. Photo by Robert Scoble, CC by 2.0.
It could have been different. It wasn’t. Ten years ago this weekend, Lehman Brothers collapsed triggering the worst financial crisis since the Great Depression. Nearly 9 million lost jobs in the Great Recession. Millions lost their homes.
Wall Street got richer.
Several articles this weekend examine what happened then, what happened after, and importantly, why little has changed.
You know the basic story. Banks got greedy and careless. Regulators under Republican and Democratic administrations looked the other way. When the mortgage market Ponzi scheme came crashing down around America’s ears, as the saying goes, the banks got the elevator and the rest of us got the shaft.
Matt Taibbi debunks a couple of the myths surrounding the crisis and the bailouts for Rolling Stone. The bank bailouts were not intended to save capitalism, no. “The deal those bankers cooked up was to save the banks from capitalism.” Actions taken in Washington to save the financial sector were a “world-war-level mobilization of cash, a generation of savings used to plug a single hole.”
Now the banks have an implicit guarantee from the government to bail them out whatever happens, Taibbi writes. That contributes an incalculable amount to their soaring profits:
Out there, in foreclosure – er, flyover – country, the only way out of the crisis was a big hit. You either foreclosed and lost your credit rating forever, or you sold your home, usually the chief investment in your life, at a gigantic loss. But a major principle of the bailout is that the banks never had to take any losses at all. Not one cent.
Only after the election of Donald Trump did former Fed chief Ben Bernanke get a clue that “the rich getting richer for eight straight years did not please voters.” Taibbi continues:
Economists, he now said, may actually have a “responsibility” to address inequities in the economy, which he conceded might have been caused by a “proclivity toward top-down, rather than bottom-up, policies.”
Imagine how dense you’d have to be to need 10 years, and the election of Donald Trump, to realize this.
These are the people who got Trump elected. Popular media myths may insist otherwise, but people in charge have to be this clueless and arrogant in order for “Anyone but…” to have real ballot appeal.
David Dayen examines actions Obama’s Treasury Secretary Timothy Geithner took to circumvent Obama’s desire to downsize and restructure Citi. Like the resistance inside the Trump administration, Geithner stalled and saved Citi instead:
The statistics of the era speak to this inequity. In Obama’s first term, the top one percent took more than all of the gains from the economy after the crisis. Meanwhile, at least 9.3 million families lost their homes to foreclosure due to the mortgage meltdown. For many Americans, the financial and psychological damage will be lifelong. But banks weathered the storm well, and this year posted record profits.
Zach Carter presents his own take and a warning at Huffington Post:
Today, Ben Bernanke, Hank Paulson and Timothy Geithner insist they did what they had to under conditions of extreme duress. Mistakes were made, the government’s former top financial overseers acknowledge in a recent piece for The New York Times, but they did ultimately “prevent the collapse of the financial system and avoid another Great Depression.”
Except they didn’t really rescue the banking system. They transformed it into an unaccountable criminal syndicate. In the years since the crash, the biggest Wall Street banks have been caught laundering drug money, violating U.S. sanctions against Iran and Cuba, bribing foreign government officials, making illegal campaign contributions to a state regulator and manipulating the market for U.S. government debt. Citibank, JPMorgan, Royal Bank of Scotland, Barclays and UBS even pleaded guilty to felonies for manipulating currency markets.
Not a single human being has served a day in jail for any of it.
Average Americans got angrier.
As for lessons learned, Carter explains, Americans learned who did and didn’t count in the land of e pluribus unum. Banks continued paying bonuses after the rest of us bailed them out.
It could have been different. When Obama took office, he promised to spend up to $100 billion from the bank bailout to prevent foreclosures. He ultimately spent just $21 billion. But the dollar amount was only a fraction of the failure. The bailout gave the government unprecedented authority over the foreclosure process ― it could have required banks to adjust monthly payments or reduce debt burdens for homeowners in distress. Instead, as Geithner put it, the foreclosure relief plan was designed to “foam the runway” for banks coming in for a hard landing. It allowed banks to slow down the pace of foreclosures, but did not actually help families keep their homes.
German economists studying the effects of 20 financial crises dating back to 1870 found “they almost always result in major gains for ‘far right’ political parties after a lag of a few years.” Elsewhere, far right parties have gained ground. Here, we elected a white nationalist.
Because the half of families irreparably harmed by the financial crisis were black and Hispanic. They lost half their net worth. Black frustration with the Democratic Party results in low voter turnout. Angry white people, Carter continues, turn more Republican:
An increasingly racist GOP doesn’t offer much to black families, so they stay home on election day, while plenty of white Democrats were either willing to hold their nose and vote for Trump, or found his demagoguery more appealing once Democrats had privileged the concerns of banking elites over the middle class.
Prosecuting Paul Manafort for his white-collar crimes is too little, too late. People have lost faith in democracy itself. If there is any window for restoring that faith in the near-term, it is a small one.
But there are signs at least some Democrats in power (just not enough of it) have figured out why they got skunked in 2010, 2014, and 2016. Now they need to get serious about in FUBARing what their own actions helped FUBAR in the first place. That means more than attacking the corruption among their conservative counterparts. It will take more than attacking the systemic corruption inside the Beltway, but that on Wall Street as well.
This country was born of a revolution to overthrow domination by a foreign aristocracy. It may only be saved by attacking a homegrown one head-on.
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