Wall St. and the Media Are Trying to Make Us Forget Who Started the Financial Crash

By Les Leopold, AlterNet. Posted May 20, 2009.

It’s fast approaching the time Wall Street has been waiting for: the time when the media and the public forget what got us into this economic mess.  As massive doses of taxpayer Viagra lift the stock market ticker, we hold out hope that our 401k and pension plans will re-erect themselves along with our jobs. We feel stimulated by the stimulus package… and the morning after we forget. The crisis, whatever it was, is over, isn’t it?  Surely, it’s time to move on.

Wall Street is praying that we forget how they broke open the Treasury vault to the tune of trillions in loan guarantees, subsidies and interest free money in addition to the more highly publicized TARP funds -- the largest transfer of wealth since African-American slaves built the South. It would be nice if we forgot about proposed wage caps on bankers. It would be nice if we stopped talking about ridiculous reforms and regulations that might prevent banker and hedge funds operators from walking off with hundreds of millions in private booty.  Better to turn our attention to the auto industry. And maybe, if it all breaks just right, most of us might start to believe that the real problem all along was Detroit, rather than the wildest Wall Street casino ever created.  It would be much better for the wealthy if we returned to one of our favorite pastimes: blaming autoworkers’ health care and pension benefits, or blasting big government for interfering in the economy.

Are we really going to forget?  That depends on the severity of the crisis and it depends on our ability to understand it. Some see green shoots all around. (I would like to sell them the Brooklyn Bridge) I’m no soothsayer so I can’t tell you how long this crisis will last, or how much carnage it will cause, or even if the green shoots will be killed by all the financial toxic waste still polluting our economy.  But I can help us remember its key characteristics: This crisis was the result of a total failure of financial markets.  It wasn’t caused by consumers taking on too much debt, or a housing bubble, or uncompetitive industries.  It was caused by financial markets run wild.  It wasn’t caused by Fannie Mae or Freddie Mac or big government. It was caused because our leaders believed free-markets could run on their own. Greenspan, Rubin, Bernanke and scores of others both on Wall Street and in government (or in the revolving doors between them) proclaimed that the free-market always knows best. It was ok if the elite gained riches once reserved for royalty.  It was ok because their prowess and ingenuity drove our economy to new heights.  They were the financial innovators of the world. It was far better for America to produce new financial instruments than to make solar energy or efficient cars.

They were dead wrong.  Left to its own devices, the financial system crashed.  We gave them every kind of deregulation they wanted and they drove the economy off a cliff.

Yet, it’s easier to blame average consumers who ran up too much debt on their credit cards or subprime borrowers who got in over their heads. In times of crisis, our complicit media likes to spread blame around. Columnist David Brooks suggests that the big unanswered question of the crash of 2008 is “how so many people could be so stupid, incompetent and self-destructive all at once.”But everyone is not to blame.  Not this time. Financial free markets failed. Free-market ideology failed. Firms that are too big to fail, failed (while profiting all the way until they raided the Treasury.).  Let’s hope our memories don’t fail as well.

PS.  My editors tell me I should end on a more empowering, uplifting note.  Here’s one: Turn the too-big-to-fail banks into publicly regulated utilities. That might prevent the next crash and might prove less taxing on our memories.

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Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).

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