The 2009 financial crisis taught us hard lessons. Have Democrats learned them?
Afirst-term Democratic president with a majority in Congress and an uncompromising Republican opposition. A country disillusioned by a previous administration’s corruption and mismanagement. A working class traumatized by an economic downturn. An establishment calling not for aggressiveness and boldness, but for half measures and compromise.
If this sounds familiar, it is not only because it describes this current moment, but because it is the experience we lived through 12 years ago – a political meltdown that destroyed many Americans’ remaining faith in their government, and ultimately birthed Donald Trump’s presidency.
That meltdown crushed faith in hope and change, and led to Maga and mayhem. And if Democrats continue making the same choices again, we should expect the same results – or worse.
2009 was not 2021, but history tends to rhyme. Back then, the contagion wasn’t a virus, it was a financial panic brought on by the collapse of what had been the American economy’s most stable pillar: the mortgage. But the homes were built atop a precarious foundation. After a spate of bank deregulation, Wall Street giants had transformed themselves into the newest peddlers of the old swamplandin-Florida schemes, enticing borrowers and pension funds to bet life savings on unsustainable housing prices and debt.
When enough homeowners couldn’t make their payments and home prices cratered, millions faced foreclosure, retirement systems faced huge losses on mortgage-related investments, 401k plans faced stock market declines, and banks faced the prospect of insolvency.
Amid this financial pandemic, though, there was a glimmer of something better – Barack Obama, who had campaigned on an inspiring promise to “bring a new era of responsibility and accountability to Wall Street and to Washington”.
That FDR-esque rhetoric resulted in a 2008 election landslide, a huge Democratic congressional majority, and high hopes that a new administration would fight the Great Recession with the same kind of robust New Deal that Franklin Roosevelt deployed to successfully combat the Great Depression.
But that didn’t happen.
Obama had helped the Bush administration forge the Troubled Asset Relief Program (Tarp), whose name seemed to promise assistance for homeowners, but which instead provided most of its benefits to a handful of financial institutions. When he took office, Obama could have changed how Tarp money was being spent, but he and his administration kept funneling the cash to Wall Street. The relative pittance that trickled out to aid borrowers mostly stretched out foreclosures to “foam the runway” for financial institutions, as Obama’s treasury secretary Tim Geithner reportedly said.
Soon after, the Wall Street-bankrolled Obama administration scaled back its economic stimulus plan, backed off its promise to reform bankruptcy laws, refused to prosecute bankers, abandoned legislation to limit the size of too-big-to-fail banks, and allowed bailout money to subsidize lavish executive bonuses.
Some lonely voices in Washington tried to sound an alarm. Tarp Inspector General Neil Barofsky warned that the opaque bailout was being misused. Congressman Brad Miller, a Democrat from North Carolina, tried to hold Obama to his promise to let judges write down mortgagors’ loans. And Senators Carl Levin and Ted Kaufman, a longtime aide to Joe Biden, pressed their party to prosecute and break up the banks.
They were largely ignored – and Obama later justified the brush-offs by insisting that doing anything more would have “required a violence to the social order, a wrenching of political and economic norms”.
But defending the banks and failing to deliver material gains to a nation ravaged by corporate malfeasance gave conservatives a political bailout, allowing them to further shred the social fabric once stitched together by a belief in shared sacrifice.
Boosted by Glenn Beck’s blubbering broadsides and Rick Santelli’s CNBC dog-whistle rant against mortgage “losers”, Republicans were able to divide the country and portray themselves as populists – and shellack Democrats in 2010’s Tea Party election.
A few years later, Democratic leaders confidently predicted that they would be able to overcome workingclass rage with support from wealthier suburbanites. After all, the top 10% of income earners saw their fortunes rise by 27% during Obama’s presidency.
But every other stratum saw incomes decline, and countless neighborhoods were eviscerated by more than 6m foreclosures, dooming families to losing battles with bank bureaucracy, government red tape, and a judicial foreclosure machine.
There was Detroit’s Sandra Hines, who tearfully told a congressional committee about being thrown out of her home in the dead of winter after she fell behind on her mortgage payments.
There was Florida oncology nurse Lisa Epstein, who, just after giving birth to an infant daughter, faced foreclosure and then endured a Kafkaesque struggle to expose fraudulent mortgage practices – which resulted in a slapon-the-wrist settlement that netted her just $600.
These experiences, repeated ad nauseam as Wall Street executives swelled their stock portfolios, convinced many to view the past promises of “hope and change” as a ruse. The subsequent outrage helped Republicans complete their takeover with Trump, a billionaire charlatan ginning up racial animosity and depicting himself as singularly able to “make America great again.”
The throughline from the financial crisis to Democrats’ failure to deliver help to the rise of Trump is evident in a study from the Center for American Progress. The Democratic thinktank found that “larger proportions of underwater homeowners were prominent features” of more than a third of the 206 counties won by Obama in 2012 that flipped to Trump in 2016.
“The legacy of the financial crisis is Donald J Trump,” concluded Trump consigliere Steve Bannon.
For today’s Democrats, the takeaway is not merely that Trump is a pathological liar, a racist and an antidemocratic menace who exacerbated the problems he diagnosed. The lesson is more elemental: when America votes for hope and change and is instead force-fed more of the same, the backlash can be swift – and can benefit conservative opportunists who will make things worse.
A dozen years later, with Democrats assuming power amid another national crisis, there were initial signs that this
lesson had been learned: the Senate majority leader Chuck Schumer said at the outset of the Biden presidency that Democrats must pass bills that are “big and bold and strong”, and he added that “we will not repeat that mistake” of watering down legislation. The child tax credit in the initial Covid relief package was a solid victory – it significantly reduced child poverty, and a recent poll shows less anti-Biden animus among Trump voters who received it.
However, much of the direct aid in that legislation has been stalled, cut off or scheduled for expiration – even as nearly one in five households lost all of their savings during the pandemic. Worse, Biden and Democrats have been considering big cuts to their already scaled-back package of housing, anti-poverty and climate initiatives. They’ve also pondered defanging provisions to reduce drug prices, and considered adding means-testing and work requirements that could make direct aid more difficult to access.
Taken together, it feels like 2009 all over again.
Billionaires are doing better than ever, while more and more Americans are getting economically pulverized – and simmering with rage. Just a year out from the midterm election, the latest polls show Biden’s approval rating plummeting, with particular erosion among Democratic constituencies who were promised change, but seem to be feeling like they’re only getting more of the same.
Once again, progressive voices sounding the alarm are getting drowned out by conservative Democrats,
their corporate donors, and pundits demanding surrender. Meanwhile, Trump and his Republican mini-mes are barnstorming the country preening as populists, all while a new crop of rightwing media hucksters are converting popular discontent into increasing support for rightwing authoritarianism.
But let’s remember: the past does not have to be prelude. If the Democrats are willing to learn from recent history, they still have time to make different choices.
In Congress, Democratic lawmakers can realize there is no “middle-ground” compromise with Republicans or corporate greed. They can end the filibuster and ignore the business lobbyists and the donors trying to halt their legislative program, which may be the last chance to help workers and ward off a climate cataclysm.
In the White House, Biden can break from Obama’s fetishization of bipartisanship. He can instead try to be a modern-day Lyndon Johnson, armtwisting his recalcitrant party members into embracing real hope and change.
Though none of this would guarantee success, it would at least give the party a fighting chance to enact its agenda and materially improve people’s lives.
That simple objective is often obscured in the social media-driven miasma of politics. But history suggests that going big and delivering tangible help to a nation in need is probably the only way to restore some faith in government, ward off an authoritarian takeover and end the meltdown of disillusionment that threatens to incinerate our democracy.
Investigative reporter David Sirota and Oscar-winning documentarian Alex Gibney are the executive producers of the new podcast series Meltdown, which explores the aftermath of the financial crisis
This essay is being published in conjunction with the launch of Meltdown. Find the podcast episodes here
When America votes for hope and change but is force-fed more of the same, the backlash can be swift