From the Thursday edition of the Morning Jolt:
This theory from John Podhoretz takes the most unexpected turns of recent American history and almost brings it to the point where it makes sense:
In September 2008, after months of uncertainty following the collapse of Bear Stearns, the financial system went into its terrifying tailspin. A disastrous recession shrank the overall economy by 9 percent, and the unemployment rate rose to 10 percent a year later.
Now imagine that the meltdown had taken place not in September 2008 but rather in September 2006. Imagine that housing prices and stock prices had fallen in the same way—such that the wealth invested in the 63 percent of home-owned American households and in the stocks owned by 62 percent of all Americans had declined by 40 percent.
Further, imagine that serious proposals arose that the 8 percent of homeowners who had defaulted on their home loans be forgiven their debts—the very proposal in 2009 that led investor Rick Santelli to call for a new “tea party” uprising on the part of the 92 percent who paid their bills on time. Only this time Santelli’s comments had been spoken in 2007. Imagine all these things. And then imagine the presidential race that would have followed. Does the rise of Trump and Bernie Sanders suddenly make all the sense in the world? Of course.
But of course the meltdown didn’t happen in 2006. It took place a mere seven weeks before an election.
The Obama election had a distorting effect on the American response to the meltdown of 2008. The next seven years in American political life came to revolve around him. His actions in the wake of the crisis—a $1 trillion stimulus, the partial nationalization of the auto industry, and Obamacare—became the policy focus of American politics…
What I’m suggesting is that the weird timing of the meltdown and the rise of Obama hindered and delayed a reckoning for 2008 that everybody would have expected as a matter of course had the crisis hit earlier.
In a lot of cases, the fight between Republican “elites” and the “grassroots” is over-hyped. But I’ll bet there is a genuine, serious chasm of opinion between the two on Wall Street and American financial leaders in 2008. There’s moderate frustration among the elites, with cautionary notes to not blame everyone in the financial industry for what went wrong and a focus on federal regulations on required loans. And the grassroots see a bunch of fat-cats who took insane risks, lost big, hurt everyone else, and escaped with golden parachutes.
I remember a few years ago talking to a friend who had read Michael Lewis’ The Big Short, a detailed book about how the financial meltdown came about. My friend noted that there were five guys at the ratings agencies who were ultimately responsible for the agencies’ assurances to investors that the mortgage-related securities were safe investments. And that in a colossal, global mess with many responsible parties, these guys did the most to steer the country into the rocks:
“Perhaps more than any other single event, the sudden mass downgrades of (residential mortgage-backed securities) and (collateralized debt obligation) ratings were the immediate trigger for the financial crisis,” the staff for Senators Carl Levin and Tom Coburn wrote in their report.
My friend – one of the smartest, even-tempered, most rational guys I know — said he wanted those five guys brought up onto a platform on Wall Street and one by one ritually shot in the head. In other words, you don’t have to be a maniac to think that some people showed irresponsibility on such an epic and consequential scale that they deserved harsh punishment, and they managed to escape any accountability at all.