Another economic catastrophe?
Last week, for the 10-year anniversary of the Bear Stearns failure, Marketplace released an hour-long interview with the key economic policymakers involved: former Federal Reserve chair Ben S. Bernanke, George W. Bush administration treasury secretary Henry M. Paulson Jr., and former New York Federal Reserve president Timothy F. Geithner, who would later become President Barack Obama’s treasury secretary.
Listening to their recounting of the start of the financial crisis, I found myself unexpectedly … wistful.
Not for the ensuing panic, or market crashes, or foreclosures, bankruptcies and layoffs that would lay ruin to millions of innocent bystanders. That was all unequivocally awful. The resulting scars, both economic and political, still have not fully healed.
What I missed was the sense that grownups, even if imperfect ones, had once been in charge.
Yes, they made plenty of mistakes. Some mistakes were enormous, and even today remain unacknowledged by the principals themselves, as you can hear in spurts of defensiveness and denial throughout the interview.
Their deepest regrets, these former officials said, were not about specific policy decisions but general communication strategy. And their communications were indeed woefully inadequate; they were never able to sufficiently explain to the public why the instinct to “let the thing burn” might seem just but would also lead to “a decade of breadlines across the country like what happened in the Great Depression,” as Geithner put it.
Nevertheless, it was a formidable team. They came from different political parties and professional backgrounds, and yet managed to work together to pull us back from the brink — that is, to prevent the Great Recession from turning into another Great Depression. Bernanke, in particular, was indispensable, given his research on the lessons of the financial collapse of the 1930s.
The subtext of the interview, and in the memoirs each has written about that period, is the but-for’s — that is, all the ways this very bad crisis could have been much, much worse.
But-for these policymakers’ backgrounds. But-for finding a buyer for troubled Merrill Lynch. But-for their ability to instill just enough fear in Congress to get lawmakers to finally act, but not so much fear that they made the global panic even worse in the meantime.
And but-for the fact that the presidential candidates in 2008 — Obama and Sen. John McCain, R-Ariz. — agreed not to exploit the escalating crisis for political advantage over one another. They released a joint statement shortly after Lehman Brothers collapsed, about the need “to rise above politics for the good of the country.”
Imagine such a thing.
It makes one wonder, and then shudder: What if instead, a decade ago, we had had the political and economic leadership we have in place today?
I’ll reserve judgment on Trump’s choice for Fed chair, Jerome H. Powell, who has only recently assumed the top job and has so far played his cards close to his chest. But the key members of Trump’s economic brain trust, Treasury Secretary Steven Mnuchin and incoming National Economic Council Director Larry Kudlow, do not exactly inspire confidence.
Both continue to make repeated unforced errors. More than a year into this administration, Mnuchin still doesn’t understand how the federal-budget process works; he had to be corrected twice by a Fox News anchor on Sunday about whether Congress can grant the president unilateral line-item veto power (which the Supreme Court ruled unconstitutional 20 years ago).
He likewise struggled to keep the lies straight about what exactly the tax cuts were supposed to do, and by what mechanism they would help the middle class.
Kudlow has likewise offered his own absurd forecasts for growth. And when it comes to actual policy, both propose little other than even more tax cuts. In fact, should we have the misfortune of facing another serious financial or economic crisis, it’s difficult to imagine the administration’s response being anything beyond tax cuts, tax cuts, more tax cuts.
Plus, perhaps, precisely the kind of political exploitation that, a decade ago, opposing presidential candidates chose to avoid.
Today, with Trump’s hunger for a trade war; trillion-dollar deficits, amid low unemployment and rising interest costs; rollback of post-crisis financial regulations; and cavalier attitude toward debt default, it is, alas, not hard to imagine some sort of self-inflicted economic catastrophe befalling the country.
Let’s hope it doesn’t come to that. But if it does, let’s then hope the team in charge grows up.
Fast.