A good, short op-ed as the five year anniversary of the financial crash of ’08 rolls around. One paragraph does a nice summary of what happened:
The pre-2008 warning was clear. How could we have missed it? “Everybody missed it,” Greenspan observed in 2010, “academia, the Federal Reserve, all regulators.” Which was not quite accurate. Everybody who could have done something missed it. (Emphasis by author)
The moral of what happened is that no one wants to listen to a Debbie Downer when things are good but, clearly, it must be done. The crash could have been either completely avoided or heavily subdued with better regulation of the financial sector and, until we realize that fact, we will have more of these crashes to deal with in the future.
Two articles appeared recently in the Washington Post that deserve rebuttals as to their slanted positions on certain issues. The first is an op-ed by Robert J. Samuelson titled “The End of Entitlement”. He argues we have reached a point where we are no longer entitled to the things in life we previously believed we deserved if we worked hard for them, such as a peace of mind about job security and retirement. He sums the idea up in one sentence:
We’re not entitled to many things: not to a dynamic economy; not to secure jobs; not to homeownership; not to ever-more protective government; not to fixed tax burdens; not to a college education.
It’s not that he is wrong about this current reality of life. It’s that his attempt at trying to decipher why this is the now case is weak and misleading.
He gives four points that we assumed would work but failed us. The first:
economists knew enough to moderate the business cycle, guaranteeing jobs for most people who wanted them…The Great Recession revealed the limits of economic management. (Emphasis added.)
This is an incredibly misleading statement. If the Great Recession revealed anything it was that there was (and is) far too little oversight of the financial sector and, when it is allowed to run wild and commit fraud without consequences to the people committing the crimes, most of us get hurt in the end. This isn’t to suggest a communistic approach to the economy but a check and balance on the financial sector’s power (similar to our system of government’s checks on each branch) is clearly what was missing in the housing sector and the derivatives market and what got us to where we are now.
And before anyone tries to make the case Fannie Mae and Freddie Mac were government-run programs that were policing the industry, they were not. Here’s how you figure that out. If it has a person called its CEO, kind of like Freddie and Fannie, it’s not government run. Period. They made their decisions without enough oversight and they screwed us in the interest of making a short term profit with painful long term consequences, just like other corporations.
His second point is that the “safety net” provided by large corporations has “shrunk” and does not provide what they once promised. One of the factors he strangely blames considering his first point: “deregulation”. In other words, economists failed at “managing” the economy but the economy failed because of deregulation. Samuelson counters himself here and apparently doesn’t notice it. If deregulation occurs at a level where it becomes problematic, then economists and the government are not actually “managing” anything. They are just observing what is happening without intervening where needed, which is what caused the crash.
His third point is that productivity gains did not translate into expected tax receipts and greater income inequality has compounded the problem of paying for government programs. This ignores two important factors causing this outcome. One, that the attack by the right on workers rights and unions has led to lower wage growth and more money going to the top earners, which is not in any way regulated but could be as Europe is doing. Two, that tax cuts, such as the Bush era cuts that went heavily to the top earners who are earning more of the money, have made tax revenues lower than previously expected when these programs were created. In other words, it was a boosting of right wing economic legislation that made this problem what it is now.
His last point is that broken families and children raised by single parents have helped take away the idea of entitlement. This idea is so ludicrous it’s hardly worth addressing. In other words, his argument is that a child in a household with two parents that fight all the time (or worse) and no longer want to be together is healthier for the child. Argue away on that point. Also, this ignores the fact stagnant wages have led to more hours worked for less pay which will have an obvious effect on the parent rearing the child, whether single or not.
The other article in the Post was a piece by Zachary Goldfarb about “liberals” (as if the government is filled with them) now dealing with the fact the defense cuts they called for are hurting the economy. The article focuses on military spending and is presented as if there is virtually no other alternative in how the government could use its funds. This suggests liberals only want cuts in defense spending and do not want the money diverted to shore up or improve other programs, such as Social Security or education.
He does spend some time on the idea money could go toward other expenditures. 2 whole paragraphs…out of 27. If this article was even a remote presentation of more liberal beliefs about where the government could spend its money, it would give far more time to this aspect and show how the defense budget dwarfs other areas that could produce jobs and help the economy like infrastructure and education. Pointing out that the federal defense budget is roughly $850 billion while federal education spending is just below $100 billion would be a start.
We’ve all been exposed to the phrase “too big to fail” when it comes to the financial crisis of 2008. But how about adding “and too risky to prosecute” to the end of that phrase? This seems to be one of the reasons stated as to why there are no Wall Street CEOs being held accountable for defrauding the country into economic catastrophe.
Frontline released another informative piece on the financial crisis in their series documenting the most important aspects of how it occurred. It’s appropriately titled “The Untouchables” as the people who came out the richest through their swindling somehow came out the cleanest, legally. There are various reasons documented as to why there have been no successful prosecutions but the last one given by Lanny Breuer, the man formerly at the Justice Department in charge of bringing these cases, is absolutely stunning. Here is the exchange from the transcript:
MARTIN SMITH: You gave a speech before the New York Bar Association. And in that speech, you made a reference to losing sleep at night, worrying about what a lawsuit might result in at a large financial institution.
LANNY BREUER: Right.
MARTIN SMITH: Is that really the job of a prosecutor, to worry about anything other than simply pursuing justice?
LANNY BREUER: Well, I think I am pursuing justice. And I think the entire responsibility of the department is to pursue justice. But in any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.
Did you catch that? Read it closely again. And again. And again. If steam isn’t coming out of your ears like a Looney Tunes character after eating a barrel full of jalapenos topped with another barrel of hot sauce, read it again because you missed what he said.
In short, we can’t bring the prosecutions against the CEOs because there might be (remember, a completely unproven statement) “some huge economic effect”. This strangely plays into the conservative idea of these people not being rich but being “job creators”. And, of course, we can only psychologically accept that title if we erase the fact they destroyed 6.8 million jobs from September 2008 to December 2009. I guess they are job creators, it’s just that sometimes the amount of jobs they create is a negative number.
So to recap, huge financial institutions instituted bad policies then made massive amounts of money by betting against those decisions knowing full well they would fail at some point. Then, as expected, they failed and took the entire economy with them. Now, we can’t even attempt to hold them accountable for what they have done because…there might be another economic crash…for prosecuting the wrongdoers who crashed the economy. In other words, a crime is committed, an effect occurs, people are caught red-handed, then those people can’t be prosecuted because another effect might happen.
Imagine applying this logic to any other crime. You could basically get out of jail time for virtually any horrendous crime. Hypothetical example: man with children cheats on wife; wife finds out; argument ensues; man kills wife; man does not even get arrested because of the potential financial effect on the kids in his household; man marries mistress; repeat. Or: great math teacher sexually abuses student; teacher gets caught on school security cameras abusing student; teacher doesn’t get arrested because of the potential for falling math scores in the school; repeat. See how insane this sounds? Yet, it is exactly what is happening.
Which brings us to the most important question: if the guys who committed the crimes that crashed the economy got rich and didn’t pay for what they did, what’s going to stop them from doing the exact same thing again? Wait, I remember the answer. We just deregulate the economy completely because the people at the top of these companies will be led by the “invisible hand” into doing only great things for us in the long run. Just like in 2008…