Episode 9: 10 Years After the Financial Crisis, A Decade for the Few

By Derrick Crowe
September 13, 2018

September 15 is the 10-year anniversary of the collapse of Lehman Brothers, the event that we typically use to pinpoint the start of the 2008 financial crisis. I think it’s worth taking a moment to look back at the last decade and compare the outcomes for the many, and the outcomes for the few. That’s coming up on Rise Like Lions.

Re-watching the video of the close of markets on Monday, Sept. 15, 2008, is surreal. The producers were certainly working overtime. By the final hour before the closing bell, CNBC had a dramatic montage with orchestral background music, tracking the bankruptcy of Lehman Brothers, the peril of AIG, and Bank of America’s purchase of Meryll Lynch. The announcer says in a gravelly voice: “The wreckage–unprecedented. The bedrock of America’s financial underpinnings–rocked to the very core.” At one point, eight talking heads are crammed into a grid. Dylan Ratigan quickly sums up the chain of events:

“Investment banks were willing to borrow money–thirty to forty dollars for each dollar that they had. They lent that out. The credit standards were relatively weak. We had defaults on home loans and other consumer finance exposures. Those exposures–should not–would normally not be that big of a deal, but the fact of the borrowing at 30-40-to-1, the blowback became unendurable, which is why Lehman Brothers is now bankrupt.”

Larry Kudlow makes an unbelievable assertion that “stocks are going to recover” and that, thanks to the actions of the Bush Administration, we will see “stocks snap back before long.” This man is now the current director of the United States National Economic Council.

Brian Williams makes a guest appearance and decides to speak on behalf of Americans in general.

“This shakes your core. It shakes your trust in American institutions.”

You could say that.

Ten years later, that confidence has not returned. NPR analyzed a recent poll and said:

Trust in the institutions that have been the pillars of U.S. politics and capitalism is crumbling.

That is one finding from the latest NPR/PBS NewsHour/Marist poll, which shows that Americans have limited confidence in its public schools, courts, organized labor and banks — and even less confidence in big business, the presidency, the political parties and the media.

I think it’s perfectly obvious why trust in the pillars of U.S. politics and capitalism is lying in ruins. It’s because for the last ten years, people have been watching a very few people make out like bandits while the rest of us are slogging through the mud. Trust in those institutions is crumbling because the people who run those institutions broke that faith themselves.

Let’s look at the outcomes for the many over the last ten years.

  • According to the Federal Reserve of San Francisco, every single person in the United States, on average, has lost $70,000 in income over the decade following the financial crisis.
  • I’m sure that in part that’s due to the lost of 8.5 million jobs during the crisis, along with 10 million people losing their homes. We’ve since regained those jobs, but they are crappy jobs that don’t pay anything, which is why real wages have been stuck in the same place since 2008 for 90 percent of us while the people at the top of this economy have seen their incomes increase.
  • Half of all African American wealth was destroyed in the crisis.
  • And a decade later, 40 percent of all Americans had trouble paying for basic needs last year.

Now let’s talk about the outcomes for the few, the people at the very top.

  • Since Lehman Brothers collapsed in 2008, the 5 largest banks have taken $583 billion in profits.
  • None of the criminals on Wall Street who are responsible for the crisis went to jail.
  • On top of that, 30 percent of the lawmakers who shaped the national response to the crisis and 40 percent of the senior congressional staff have gone to work either directly for the financial sector or for firms that represent that sector–and that’s a bipartisan phenomenon, according to the Washington Post’s Jeff Stein.
  • Wall Street banks have placed their people inside the regulatory and oversight bodies in the Trump Administration, which is now refusing to enforce the law against these companies.
  • The GOP tax scam put billions of dollars into the bank accounts of these firms, while doing nothing to get wages up for the working class.
  • Now the GOP is talking about another multi-trillion-dollar tax scam package. All told they will have spent around $5 trillion on these two tax packages alone, just to give their top donors what they demanded.

All of this makes it absolutely clear that the overwhelming concern in our political and policy response to the crisis was to protect the few, not the many. Now why is that?

For one, we have the revolving door I mentioned a moment ago: 30 percent of lawmakers and 40 percent of the senior congressional staff who worked on our response to the crisis have gone to work for the finance industry or for firms that represent them. Employees of those firms get bonuses for coming to work on Capitol Hill. It’s a bipartisan phenomenon driven by a very simple impulse: Greed. A senior staffer leaving the Hill to work in a finance firm can make ten times or more what they were making before.

Second, Wall Street works very hard to buy both parties off. The securities and investment sector is by far the leading donor to political candidates, and it spreads the wealth among both parties: $36 million to Democrats, $26 million to Republicans in the 2018 cycle alone.

The revolving door and this intense legalized bribery effort leads to a phenomenon called “cultural capture,” where an industry succeeds in getting the governing and regulatory bodies to identify with it instead of with the people its supposed to represent.

That investment and the culture capture corruption is scrambling the interests to which the parties and our government are responsive. Thomas Piketty and others have been tracking a long-term phenomenon in which political parties on the left are evolving to represent elites with high incomes and high education levels, while the parties on the right represent high wealth elites. You can see this phenomenon and this evolution clearly in 2016, which the top 10 percent of income earners suddenly voted Democratic for the first time.

But here’s the thing: a slapfight between the high income/high education elites on one hand and high wealth elites on the other hand leaves out the working class. Elites are the few by definition. They aren’t numerous enough to comprise the votes needed to formally take power in the U.S., so they have to make some kind of play for lower income voters.

Enter Donald Trump.

Republicans under Trump have made a very clear decision on how to do that: whites-only democracy, nativism, and an appeal to the fear that there’s not enough to go around. That’s their play for mass appeal.

There is a fight going on in the Democratic Party as to whether and how we are going to make a play for mass appeal. Right now House Democrats are talking about bringing back PAYGO, or pay-as-you-go budgeting. That would be disastrous, because it would mean that any real effort to deal with climate change, income inequality, or single-payer health care would be held hostage to what is essentially an inequality. It sets the default in budgeting to include whatever budgets we inherit from Republican to score a rhetorical point that Republicans don’t care about. Now we could do that, and explain to people that saving them from drowning in this for-the-few economy is less important than balancing some spreadsheet, and we can watch the Republican strategy eat us alive. We could position ourselves as the guardians of an inherently conservative status quo, and lose decisively to Trump.

Or, we could reject the corruption of the culture capture, and reject the mentality that gave us this decade for the few.

The bottom line is, the left has to fight its way back into power with an agenda that tells people that they matter, that puts the full potential of the public purse behind them and that gives them back a share of the ownership of this country.

People are crying out for this agenda. Seventy percent support Medicare For All. Sixty percent support free college. Enough beating around the bush. Eventually, the right will evolve into policies like “free college for the white people.” We better beat them to it with free college for everyone.

Tolerating a decade for the few has led to runaway inequality, stagnant wages, and a climate on the edge of collapse. We need to do better than that. Democratic socialism is the way out. Let’s have a decade for the many, and not just the few.