As we keep hearing on this 10th anniversary of the financial crisis that destroyed so many dreams and livelihoods, the economy is now “robust,” “booming,” “soaring.”
We have, indeed, come a long way from the acute pain of that crisis. But the implication that everything is hunky-dory contained in those descriptions is far off the mark. The damage done by that crisis is not all repaired, and some of it never will be. Moreover, the chronic economic problems that afflicted us before the Great Recession struck are no nearer a solution than they were in, say, 2005. For instance, as we’ve seen, average wages are still stagnant, with raises barely pacing inflation.
What’s most irksome about retrospectives of the crisis appearing a decade after it began is how so many of them conveniently make invisible the people whom the Great Recession hit hardest, who were ripped off by crooks, and for whom the post-recession recovery has not been all that robust.
Two pieces in The New York Times and a third at The Big Picture today are worth a look because they make those people visible, at least acknowledge their existence. These are Paul Krugman’s column Botching the Great Recession, Nelson Schwarz’s “The Recovery Threw the Middle-Class Dream Under a Benz” and Barry Ritholtz’s Crimes Were Committed.
Start with Schwarz, who writes that the scars of the crisis are still with us:
The most profound of these is that the uneven nature of the recovery compounded a long-term imbalance in the accumulation of wealth. As a consequence, what it means to be secure has changed. Wealth, real wealth, now comes from investment portfolios, not salaries. Fortunes are made through an initial public offering, a grant of stock options, a buyout or another form of what high-net-worth individuals call a liquidity event.
Data from the Federal Reserve show that over the last decade and a half, the proportion of family income from wages has dropped from nearly 70 percent to just under 61 percent. It’s an extraordinary shift, driven largely by the investment profits of the very wealthy. […]
Worsening the picture, the post-crisis era has been marked by an increased disparity in wealth between white, Hispanic and African-American members of the middle class. That’s according to an analysis of Fed data by the Pew Research Center, which found that families in the latter two groups were more dependent on housing as their principal form of investment. Not only were both minority groups harder hit by foreclosures, but Hispanics were also twice as likely as other Americans to be living in Sun Belt states where the housing crash was most severe.
In 2016, net worth among white middle-income families was 19 percent below 2007 levels, adjusted for inflation. But among blacks, it was down 40 percent, and Hispanics saw a drop of 46 percent.
I’m already stretching the bounds of fair use, so I urge you to read the rest. There’s nothing Schwarz tells us we didn’t already know there, but it’s a roundup that doesn’t leave out the people who haven’t yet recovered from the crisis. Longstanding inequality due to racism contributes significantly to this. The government’s limited response to the Great Recession and its aftermath has exacerbated it.
Ritholz asks, “Why did nobody go to jail?”
3. Lots of Crimes, Few Prosecutions: People who know better keep repeating the trope that no crimes were committed before, during or after the financial crisis. I was reminded of this over the weekend, when a show I watch each week, Michael Smerconish on CNN, had Andrew Ross Sorkin as a guest.5
On CNN Saturday, Sorkin told Smerconish:
“As a journalist I wish I could have . . . really found the crime . . . The whole crisis felt like a crime . . . But in truth on a very individual basis I think these individuals at the top if these institutions made some very terrible decisions. But it is very hard to decide there were crimes, because you have to believe they were defrauding the public from the very top. . . . The people at the top did not understand what was going on two floors below them. So its very hard to convict under that scenario.”
This glib explanation rings hollow to anyone who was paying attention at the time. Those who have looked closely into this have found abundant criminality. Start with the Financial Crisis Investigation Commission Report, which while looking into the root causes of the crisis, saw evidence of felony fraud.6 They detailed their findings in the 663-page The Financial Crisis Inquiry Report.
And, finally, here’s Krugman wondering why we didn’t get the fiscal policy we needed to address the situation:
First, we can argue whether the Obama administration could have gotten more; that’s a debate we’ll never see resolved. What is clear, however, is that at least some key Obama figures were actively opposed to giving the economy the support it needed. “Stimulus is sugar,” snapped Tim Geithner at Christina Romer, when she argued for a bigger plan.
Second, Very Serious People pivoted very early from concern about the unemployed —hey, they probably lacked the necessary skills—to hysteria over deficits. By 2011, unemployment was still over 9 percent, but all the Beltway crowd wanted to talk about was the menace of the debt.
Finally, Republicans blocked attempts to rescue the economy and tried to strangle government spending every step of the way. They claimed that this was because they cared about fiscal responsibility—but it was obvious to anyone paying attention (which unfortunately didn’t include almost anyone in the news media) that this was an insincere, bad-faith argument. […]
The end result was that policy moved quickly and fairly effectively to rescue banks, then turned its back on mass unemployment. It’s a story that’s both sad and nasty. And there’s every reason to believe that if we have another crisis, it will happen all over again.
Republicans have since done what they can to give the wealthy an even greater hunk of the financial benefits with outrageous tax cuts. And if they can figure out how to pull it off, they’ll force more cuts in social programs to pay for those tax cuts. Give them credit. They’ve got no hesitation in prosecuting their side of the class war.
If all that encouraging talk of blue tsunami comes true in November, and Democratic candidates win a majority of House races (along with state legislatures and statewide offices), some of the economic damage Republicans might otherwise achieve in the near future can be blocked if the leadership has the gumption. But when Democrats next gain the upper hand nationally, we need to stop futzing around the margins and create economic policies that go a lot further than, say, simply patching up the wreckage of Consumer Finance Safety Board. Otherwise, Krugman’s prophecy will come true.