"It does not take a long time," said madame, "for an earthquake to swallow a town. Eh well! Tell me how long it takes to prepare the earthquake?"
"A long time, I suppose," said Defarge.
"But when it is ready, it takes place, and grinds to pieces everything before it. In the meantime, it is always preparing, though it is not seen or heard. That is your consolation. Keep it."
Charles Dickens, A Tale of Two Cities
The “irrational exuberance” of the 90’s may have been the first warning that our financial markets were in danger of collapse. Of course none of us saw any real economic threat as the U.S. was experiencing what appeared to be its longest period of economic expansion ever. The terms of welfare shifted as marketeers introduced “temporary assistance” and “benefit timelines” in place of means-tested social safety nets and “personal responsibility” became the new watchword in an idyllic nostalgia for a time that never was, a time when men were self-sufficient men and women were home-bodies with children. With the shift in the terms of debate, poor people became lazy and the affluent were simply the successful entrepreneurs that we all desired to be, and could be with enough hard work and properly passive wives. Big business mergers and corporate greed remained largely unchecked because what’s good for business is generally considered to be good for the people. Besides, wealth (like poverty) was earned and it was high time that we let big business be big business (and men be men) and stop expecting good behavior. It was masculine, acquisitive exuberance, after all, that won the wild west and came to stand as the basis of democratic freedom. And with the exaltation of manly business exuberance, we viewed the spread of “free trade” through such things as the WTO, NAFTA, and the World Wide Web as undisputed advances in freedom and democracy worldwide. Equality was a winner too; women were earning more college degrees and becoming CEO’s in record numbers. The cult of Individualism was in full swing and people were enjoying the freedom to consume.
As the economy came to a grinding halt with the collapse of the dot.com bubble in the early 2000’s, we were introduced to yet a new term, “jobless recovery.” This “recovery” lasted until the attacks of September 11th rocked the nation (and the stock market) and showed how unsubstantial jobless recoveries are. As the financial sector took another tumble, the White House sought to shore up faith in the efficacy of irrational exuberance by urging consumers to go out and shop and “buy American.” Our leaders used the “America: Open for Business” campaign to assure the public that their private spending would stimulate the economy and promote confidence in not only the market, but in democracy itself. One billboard provocatively turned the American flag into a shopping bag. Simultaneously, the rise of “Girlie feminism” (a term coined by Jennifer Baumgardner and Amy Richards) entered the scene with the idea that make-up and other feminine accoutrements were feminist expressions of equality. The power to spend became an extension of the Liberal feminist project prompting privileged (mostly white) women to spend their hard-earned money making fashion statements.
In 2003, American troops invaded Iraq under “Operation Iraqi Freedom” beginning an expensive search for “Weapons of Mass Destruction,” whatever that means. At the same time, a calculated PR campaign sold us the notion that freedom isn’t free to ensure the public’s financial commitment to the war. At home, Americans were encouraged and prompted to support the economy by purchasing homes and taking out home equity lines of credit (increasing home ownership has been a feature of every administration since Reagan). While many Americans were clutching on to their jobs, deeply beholden to the banks for their generous and patriotic, albeit risky, extensions of credit, they found themselves spending more and saving less; then the housing market peaked. After every peak comes a fall.
House prices declined in 2006 and banks began resetting adjustable rate mortgages to higher rates resulting in an abundance of mortgage delinquencies and foreclosures. The problem of sub prime lending became a full-blown crisis in 2007 with at least 100 mortgage companies shutting their doors and/or suspending operations. Panic in the financial sector deepened as more Americans lost jobs and “faith” in the market. In addition, many consumers were finally being held responsible for their reckless (previously patriotic) spending habits and irrational (previously faithful) material obsessions.
In 2007 Americans were painfully aware that the financial problems were not going away. More banks began to close their doors, interest rates were sky-rocketing (despite the lowering of the federal funds rate) and consumers were again being asked to foot the bill. Americans were charged to take responsibility for buying homes they could not afford and Congress was approached with requests to bail out a “financial sector” that had, through no fault of its own, collapsed. As consumers were lambasted and assured of their personal culpability, obscene “financial sector” CEO bonuses were on schedule and unregulated high-risk business practiced continued with nary an alarm. It was, after all, business as usual.
After the banking industry crumbled and before the historic government bailout, many Americans became disenchanted by what was happening on Wall Street and began searching for answers. While the public was still reeling from the too-big-to-fail bailout rhetoric, Hank Paulson (then Treasury Secretary and former CEO of Goldman Sachs) slipped through a proposal that would allocate 700 billion dollars of government money to save Wall Street (from who?). However counterintuitive it seemed, the negotiations happened so fast, the American people had little time to understand the consequences of what was happening.
The law (as it was originally proposed by Paulson) would allow the Treasury Secretary to purchase as much as 700 billion in troubled assets with no judicial oversight or legal accountability. According to CNN Money this was one of the most far-reaching interventions in the economy since the Great Depression. In support of the bill, Chairman of the Federal Reserve, Ben Bernanke said that the banking crisis may in fact be worse than the great Depression and that we ought to act quickly to save the market. Interestingly, during Bernanke's first term as Chairman, he oversaw the Federal Reserve's largest increase of power since its creation. The Economist magazine wrote that although "Mr. Paulson’s plan is not perfect... it is good enough" and that "Congress should pass it—and soon." Warren Buffet also gave the thumbs up to the bank bailout (as a heavy investor in Goldman Sachs) saying, “Goldman Sachs is an exceptional institution… It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of out performance.”
The Emergency Economic Stabilization Act of 2008, also known as H.R. 1424 was signed into law by former president George W. Bush on October 3, 2008. The house voted to pass the bill 263/171 with Senate support not far behind at 74/25. This bill gave the government the authority to purchase troubled assets and provide economic stability to the “financial sector.” In just a decade’s time we went from Welfare Queens to Wall Street Kings. Upon receiving funds from the bailout, along with some bad press over the deal, some executives, it was reported, were fearful for their lives as they skulked back to their high-rise apartments and gated communities. The masses were angry and what’s worse they didn’t have any jobs to distract them from details of what was happening.
Some suggest the bailout will cost the average working American almost five thousand dollars. This is what socializing the debt and privatizing the profits looks like and, unfortunately, many feel helpless to stop the corporate welfare. As Chomsky says, “free markets for the poor and state protection for the rich.”
Barack Obama assumed the office of the presidency January 20, 2009 and proposed a bill designed to stimulate the economy. “The American Recovery and Reinvestment Act” was enacted in February 2009, which included provisions to spend up to 787 billion dollars on federal tax cuts, healthcare, infrastructure, and renewable energy. At the end of August 2009, almost 20% of the funds had gone to American taxpayers or businesses in the form of tax reductions. Unlike the bailout, which allocated billions of no-strings-attached tax dollars to the “financial sector,” tax cuts and spending on healthcare and infrastructure was not only unhelpful, but outright dangerous to the wild, irrational exuberance that defines America. What is righteous capitalism for the rich is degraded and un-American socialism for the poor. No Republicans in the House and only three Republican Senators voted for the bill.
In the aftermath and confusion of the bailout and stimulus, what’s next? Perhaps an earthquake. I suppose you can take solace in the fact that, although unseen and unheard, at least you suspect its impending occurrence.
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