How the Obama handling of the Financial Crisis enabled Trump

An article by Joshua Green on how the Obama administration’s handling of the Global Financial Crisis – protecting financial institutions responsible rather than publishing – built deep resentment that was exploited successfully by Trump’s campaign. And how Trump is taking similar risks of resentment by favouring big business and lauding the Wall Street bull run that continues.

Bloomberg: The Biggest Legacy of the Financial Crisis Is the Trump Presidency

(Treasury Secretary Timothy) and Obama saw the crisis primarily as a macroeconomic event that could be solved through a series of aggressive technical fixes. As they arranged the mergers, bailouts, and Fed lifelines that rescued corporations from Citigroup to General Motors to Goldman Sachs, they prided themselves on their ability to tune out the public’s justified anger at the greed and recklessness exhibited by financiers and mortgage lenders. This extended even to some clear-cut abuses of the public trust that occurred on their watch, such as when American International Group Inc.—by then a ward of the state—decided to hand out bonuses.

What was so surreal about this period was not Obama’s conviction that growth was a magical elixir that would set everything right. It was his belief that achieving it required him to protect, rather than punish, those who’d driven the economy into the ground.

Summoning the chief executive officers of the major banks to the White House in the spring of 2009, Obama told them, “My administration is the only thing between you and the pitchforks.” Like flagellants, he and his economic team were willing to absorb the lashing that should rightfully have been directed at his Wall Street guests, in the belief that shielding them advanced a higher purpose.

Ten years after the crisis, it’s clear Obama was foolish to think public sentiment could be negated or held at bay.

Millions of people lost their job, their home, their retirement account—or all three—and fell out of the middle class. Many more live with a gnawing anxiety that they still could. Wages were stagnant when the crisis hit and have remained so throughout the recovery. Recently the Bureau of Labor Statistics reported that U.S. workers’ share of nonfarm income has fallen close to a post-World War II low.

…a substantial number of Americans saw the rising stock market not as a gauge of economic revitalization but as an infuriating reminder that the financial overclass responsible for the crisis not only got off scot-free but was also getting richer in the bargain.

Some political irony there given it happened under a Democrat presidency.

The story of American politics over the past decade is the story of how the forces Obama and Geithner failed to contain reshaped the world. The day-to-day drama of bank failures and bailouts eventually faded from the headlines. But the effects of the disruption never went away, unleashing partisan energies on the Left (Occupy Wall Street) and the Right (the Tea Party) that wiped out the political era that came before and ushered in a poisonous, polarizing one.

The critical massing of conditions that led to Donald Trump had their genesis in the backlash.

The biggest effect of the financial crisis and its aftermath was a loss of faith in U.S. institutions.

Antipathy toward Wall Street eventually became distrust of the government, which not only struggled to mitigate the effects of the meltdown but also began producing its own crises, including a debt default scare in 2011 and a shutdown two years later.

In 2013, five years into the recovery, Gallup discovered that Americans no longer considered “economic issues” to be the most pressing national problem: “Government” had replaced them as the top concern.

And the Republicans stoked this flame.

The other reason the financial crisis became such a powerful shaping force in our politics is that Republicans (and later Democrats such as Bernie Sanders) weaponized it for their own ends. The architect of this strategy was Senate Majority Leader Mitch McConnell.

McConnell made the cold-eyed calculation that public anger over the crisis could be harnessed for political gain.

The ensuing polarization helped Republicans win the House in 2010 and the Senate four years later. McConnell failed to achieve his goal of making Obama “a one-term president,” mainly because Democrats flipped the script in 2012 and painted Mitt Romney as a Wall Street-friendly “vulture capitalist.”

So both Obama’s Democrats and the Republicans, and ‘the swamp’ were jointly seen as badly tarnished.

By the time Trump declared his candidacy in 2015, Americans of every persuasion had soured on the “elites” running both parties, something his Republican opponents didn’t understand until far too late. Today, his campaign is remembered as having been driven mostly by anti-immigrant animosity.

But at Steve Bannon’s insistence, Trump spent loads of time attacking Wall Street on behalf of the forgotten little guy and fanning the suspicion that a cabal of political and financial eminences was screwing ordinary people.

His closing message in the campaign consciously evoked the disgust so many people had come to feel toward Wall Street and Washington.

His final ad on the eve of the election flashed images of Federal Reserve Chair Janet Yellen and Goldman Sachs CEO Lloyd Blankfein and sought to implicate them, and Hillary Clinton, in what Trump called “a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth, and put that money into the pockets of a handful of large corporations and political entities.”

He added, “The only thing that can stop this corrupt machine is you.” It’s no surprise this message struck a chord: What is Trump if not the embodiment of a balled fist and a vow to deliver Old Testament justice?

Trump succeeded despite his obvious weaknesses and failings because he was seen by enough ordinary voters as anti-Government and anti-establishment.

Since his inauguration, of course, Trump has proved to be anything but the scourge of Wall Street. His central legislative achievement is a tax cut for corporations and the wealthy that has delighted financial elites and pushed markets higher, even as it polls so badly with rank-and-file voters that GOP politicians are hesitant to campaign on it.

Trump keeps pushing the financial markets and Wall Street as a sign of success for him. Recently:

Lately, the energy on the Left has been around big, budget-busting ideas such as free college tuition and Medicare for all that are themselves a response to the crisis—a ratcheting up of demands on the government by those unhappy with the narrowness of the recovery.

Lurking among these proposals is a long-thwarted desire to square accounts with the Wall Street-Washington establishment that has steered the political economy since the crisis.

It’s hard to know whether people will turn sour over Trump’s favouring of the financial establishment and his claims that he is responsible for their success. A difference with Trump is the level of blind belief in him by many people, who see him as doing no wrong no matter what he does.

Predicting how this energy will further shape our politics is all but impossible. When Geithner and I sat in his office back in 2010 contemplating what might lie ahead, neither of us could have fathomed (nor could anyone else) that one consequence of the financial wreckage would be President Donald Trump.

The lesson that stands out all these years later is the same one Geithner was just coming to appreciate: Ignoring popular sentiment always has political consequences, and they’re often ones we can’t possibly imagine.

Right now it is hard to imagine how the Trump presidency will turn out. Perhaps he can survive his financial establishment duplicity while the markets are doing well, but if the record length bull market goes belly up then Trump may end up being trashed like those before him who enabled his rise.

5 Comments

  1. Patzcuaro

     /  August 31, 2018

    I think you meant “record length bull market” but it could have just been “fake news” 🤔

    • I did mean ‘bull market’ and have corrected it, thanks. It wasn’t fake news, it was a fuck up.

  2. Patzcuaro

     /  August 31, 2018

    Daily dose of Trump

  3. Blazer

     /  August 31, 2018

    the GFC really shone the light on banking misfeasance ,the dangers of de regulation and the abrogation of personal responsibility(atn Corky) endemic in that malignant cancer of capitalism,……parasitic usury.

  4. Blazer

     /  August 31, 2018

    at long last the real owners revealed …..may be a surprise to…some..

    https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12116873