Biden doesn't want rerun of Great Recession bailout
He makes it clear no bank losses will be borne by taxpayers
WASHINGTON >> On that summer day in 2010 when he signed new legislation regulating the banks after the worst financial crash in generations, President Barack Obama declared, “There will be no more tax-funded bailouts. Period.” Standing over his right shoulder just inches away and clapping was his vice president, Joe Biden.
Nearly 13 years later, Biden, now a president facing a banking crisis, appeared before television cameras Monday to make clear that he remembered that moment even as he guaranteed depositors at failing institutions.
“This is an important point: No losses will be borne by the taxpayers,” he vowed. “Let me repeat that: No losses will be borne by the taxpayers.”
He could not even bring himself to utter the word “bailout.”
Washington remains haunted by the specter of government intervention after the banking sector collapse that triggered the Great Recession, leaving leaders of both parties determined to avoid any repeat of that painful period. The colossal bailouts initiated under President George W. Bush and continued under Obama arguably saved the global economy but also provoked such a ferocious popular backlash that they transformed U.S. politics to this day.
It gave birth to the Tea Party and Occupy Wall Street movements and undermined the establishment across the political spectrum. In some ways,
A line forms outside a Silicon Valley Bank branch location Monday in Wellesley, Mass. that popular revolt empowered populists like Donald Trump and Bernie Sanders, ultimately helping Trump to win the presidency.
“Today's populism is firmly rooted in 2008,” said Brendan Buck, a top adviser to two Republican House speakers, John Boehner and Paul Ryan, who were both eventually targeted by Tea Party rebels within their own party. “The bailouts not only fostered distrust of corporations, but cemented the notion that elites always do well while regular people pay the price. Bailouts were also followed by a large expansion of government, and while it all may have prevented much worse calamity, the recovery was slow.”
Biden, of course, knows all that intimately. He saw it up close, watching the public uprising from his office in the West Wing while counseling Obama on how to respond. Even the separate economic stimulus package that Obama assigned Biden to manage came to be tainted because many Americans confused it with the bank bailouts.
And so now, as he endeavors to head off a crisis of confidence after the failure of three financial institutions in recent days, Biden wants to avoid not just a run on the banks but a run on his credibility.
“The term and the idea of bailouts are still highly toxic,” said Robert Gibbs, Obama's first White House press secretary.
He said Biden rightly focused on accountability for those responsible and sparing taxpayers the cost.
“Those are two important lessons learned from 15 years ago,” Gibbs said. “Emphasizing that the ones being helped are instead innocent bystanders who just had money in the bank is why a backlash is less likely.”
But Republicans were quick to pin both the crisis and potential resolution on Biden, accusing him of fostering economic troubles by stoking inflation with big spending and labeling government efforts to head off escalation of the crisis the Biden bailout.
“Politically, if you ask me what's the impact of bailing out rich techies in California — which is exactly how this will be played — then the answer is Donald Trump's likelihood of reelection just went up three to four points,” said Mick Mulvaney, who came to Congress as a Tea Party champion.
In repeating that taxpayers will not bear the cost of bailing out depositors at the failed banks, Biden noted that the cost will be financed by fees paid by other banks into the Federal Deposit Insurance Corp.. What he did not mention was that a separate loan program that the Federal Reserve has opened to help keep money flowing through the banking system will be backed by taxpayer money.
In a statement Sunday, the Fed said it “does not anticipate that it will be necessary to draw on these backstop funds.”
The nuances did not matter to Biden's critics.