Bush, George W

Latest story

163 Shares169 Views

Don’t Call It a Bailout: Washington Is Haunted by the 2008 Financial Crisis

by

The colossal bailouts after the 2008 collapse arguably saved the global economy, but they also provoked a ferocious popular backlash.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, Joseph R. Biden Jr.Nearly 13 years later, Mr. Biden, now himself a president facing a banking crisis, appeared before television cameras on 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 Mr. Obama arguably saved the global economy but also provoked such a ferocious popular backlash that they transformed American politics to this day.The notion that “fat-cat bankers,” as Mr. Obama once called them, should be rescued by the government even as everyday Americans lost their jobs, their homes and their life savings so rankled the public that it gave birth to the Tea Party and Occupy Wall Street movements and undermined the establishment across the political spectrum. In some ways, that popular revolt empowered populists like Donald J. Trump and Bernie Sanders, ultimately helping Mr. 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 A. Boehner and Paul D. 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.”Mr. 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 Mr. Obama on how to respond. Even the separate economic stimulus package that Mr. Obama assigned Mr. 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, Mr. 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, Mr. Obama’s first White House press secretary. He said Mr. Biden rightly focused on accountability for those responsible and sparing taxpayers the cost. “Those are two important lessons learned from 15 years ago. Emphasizing that the ones being helped are instead innocent bystanders who just had money in the bank is why a backlash on this action is less likely.”But Republicans were quick to pin both the crisis and potential resolution on Mr. 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 re-election just went up three to four points,” said Mick Mulvaney, who came to Congress as a Tea Party champion and later served as Mr. Trump’s acting White House chief of staff.In repeating that taxpayers will not bear the cost of bailing out depositors at the failed banks, Mr. Biden noted that the cost will be financed by fees paid by other banks into the Federal Deposit Insurance Corporation, or F.D.I.C. 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 on Sunday, the Fed said it “does not anticipate that it will be necessary to draw on these backstop funds.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.The nuances did not matter to Mr. Biden’s critics. “Joe Biden is pretending this isn’t a bailout. It is,” Nikki Haley, the former ambassador to the United Nations now running for the Republican presidential nomination, said in a statement. “Now depositors at healthy banks are forced to subsidize Silicon Valley Bank’s mismanagement. When the Deposit Insurance Fund runs dry, all bank customers are on the hook. That’s a public bailout.”Other conservatives argued that a government rescue, however it is formulated, warps private markets and eliminates disincentives for financial institutions taking reckless risks because they can assume they too will eventually be saved, a concept called “moral hazard.”“Organizations that can’t manage risk should be allowed to fail, and taxpayers should not be forced to bailout the well-connected and wealthy because a bank prioritized woke causes above smart investing,” David M. McIntosh, a former Republican congressman from Indiana and president of the Club for Growth, a conservative advocacy organization, wrote on Twitter.But the White House adamantly rejected the comparison to the bailouts of the past, noting that the government is protecting depositors, not investors, while firing bank managers responsible for the trouble. “This is very different than what we saw in 2008,” Karine Jean-Pierre, the White House press secretary, told reporters.Michael Kikukawa, another White House spokesman, later said in a statement: “The president’s direction from the outset has been to respond in a way that protects hardworking Americans and small businesses, keeps our banking system strong and resilient, and ensures those responsible are held accountable. That’s exactly what his administration’s actions have done.”Mr. Biden, for his part, blamed Mr. Trump for the current crisis, saying “the last administration rolled back some of these requirements” in the Dodd-Frank law that Mr. Obama signed in 2010. Mr. Trump signed legislation passed by lawmakers in both parties in 2018 freeing thousands of small and medium-sized banks from some of the strict rules in the earlier law.The bailouts back then came in response to a banking crisis that seemed far more dangerous than what is currently evident. Some of the country’s most storied investment houses were collapsing in 2008 under the weight of risky mortgage-based securities, starting with Bear Stearns and later Lehman Brothers.Mr. Bush was warned that a cascade of failures could propel the country into another Great Depression. “If we’re really looking at another Great Depression,” he told aides, “you can be damn sure I’m going to be Roosevelt, not Hoover.”Casting aside his longstanding free-market philosophy, Mr. Bush asked Congress to authorize $700 billion for the Troubled Asset Relief Program, or TARP, to prop up the banks. Aghast at the request just weeks before an election, the House rejected the plan, led by Mr. Bush’s fellow Republicans, sending the Dow Jones industrial average down 777 points, the largest single-day point drop in history to that point. Alarmed by the reaction, the House soon reversed course and approved a barely revised version of the plan.Mr. Obama and his running mate, Mr. Biden, both voted for the program and went on to win the election. Taking office in January 2009, they then inherited the bailout. In the end, about $443 billion of the $700 billion authorized was actually used to bolster banks, automakers and a giant insurance firm. As unpopular as it was, the injection of funds helped stabilize the economy.The ultimate cost of the bailouts of that period remains in dispute. Mr. Obama and others who were involved often say that they were all ultimately paid back by the companies that benefited from the funds. ProPublica, the nonprofit investigative news organization, calculated in 2019 that after repayments the federal government actually made a profit of $109 billion.But it depends on how you count the costs. Deborah J. Lucas, a professor at the Massachusetts Institute of Technology, calculated that same year that the TARP program cost $90 billion in the end, a far cry from the original $700 billion. But other bailouts, most notably to Fannie Mae and Freddie Mac, the federally backed home mortgage companies, brought the total cost of various bailouts to $498 billion in her estimation.Either way, critics on the left and right felt aggrieved. As recently as 2020, Mr. Sanders cited the issue in running against Mr. Biden for the Democratic nomination. “Joe bailed out the crooks on Wall Street that nearly destroyed our economy 12 years ago,” he said at a town hall.Mr. Biden stood by the decisions, maintaining they worked. “Had those banks all gone under, all those people Bernie says he cares about would be in deep trouble,” he said during a debate, adding, “This was about saving an economy, and it did save the economy.”The issue was not enough to cost Mr. Biden the nomination, but that did not mean voters remember the bailouts of the past fondly. “To many, it didn’t feel like it ‘worked,’ and that made it very easy to demagogue,” said Mr. Buck. “A long period of economic malaise also leads to people looking for something or someone to blame, which is the basis for populism. I firmly believe we don’t get Trump without the devastation of 2008.” More

More stories

  • 113 Shares129 Views

    in Economy

    How the U.S. Government Amassed $31 Trillion in Debt

    by

    Two decades of tax cuts, recession responses and bipartisan spending fueled more borrowing — contributing $25 trillion to the total and setting the stage for another federal showdown.WASHINGTON — America’s debt is now six times what it was at the start of the 21st century. It is the largest it has been, compared with the size of the U.S. economy, since World War II, and it’s projected to grow an average of about $1.3 trillion a year for the next decade.The United States hit its $31.4 trillion legal limit on borrowing this past week, putting Washington on the brink of another fiscal showdown. Republicans are refusing to raise that limit unless President Biden agrees to steep spending cuts, echoing a partisan standoff that has played out multiple times in the last two decades.But America’s ballooning debt is the result of choices made by both Republicans and Democrats. Since 2000, politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers and emergency measures to help the nation endure two debilitating recessions.“There have been bipartisan tax cuts and bipartisan spending increases” driving that growth, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget and perhaps the pre-eminent deficit hawk in Washington. “It’s not the simple story of Republicans cut taxes and Democrats grow spending. Actually, they all like to do all of it.”Few economists believe the level of debt is an economic crisis at the moment, though some believe the federal government has become so large that it is taking the place of private businesses, hurting growth in the process. But economists in Washington and on Wall Street are warning that failing to raise the debt limit before the government begins shirking its bills — as early as June — could prove catastrophic.Despite all the fighting, lawmakers have taken few steps to reduce the federal budget deficit they have produced. It has been nearly a quarter-century since the last time the government spent less than it received in taxes.Because spending programs today are so politically popular, and because retiring baby boomers are driving up the cost of programs like Social Security and Medicare every year, budget experts say it is unrealistic to expect the books to balance again for another decade or more.The White House estimates that borrowed money will be necessary to cover about one-fifth of a $6 trillion federal budget this fiscal year — a budget that includes military spending, the national parks, safety net programs and everything else the government provides.In just two decades, America has added $25 trillion in debt. How it got itself into this fiscal position has its roots in a political miscalculation at the end of the Cold War.President Lyndon B. Johnson signing Medicare into law in 1965. In part because of the popularity and rising costs of programs like Medicare, federal deficits are expected to continue for at least a decade.Associated PressIn the 1990s, America reaped a so-called peace dividend. It reduced spending on the military, believing it would never have to invest as much in national security as it had when the Soviet Union was a threat. At the same time, a dot-com boom delivered the highest federal tax receipts, as a share of the economy, in several decades.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

  • 125 Shares149 Views

    in Economy

    Edward P. Lazear, Economist and Presidential Adviser, Dies at 72

    by

    Edward P. Lazear, a pioneering labor economist at Stanford University who advised President George W. Bush during the financial crisis, died on Monday. He was 72.The cause was pancreatic cancer, the university said. It did not say where he died.Professor Lazear may be best remembered as the founder of a field that has come to be known as personnel economics, which seeks to understand how businesses hire, retain and pay employees. He also founded the Journal of Labor Economics and the Society of Labor Economists.But perhaps his most critical job was as chairman of President Bush’s Council of Economic Advisers when the American financial system buckled after a housing and debt bubble had burst, forcing the federal government to spend hundreds of billions of dollars to bail out financial institutions and rescue a sinking economy.“Eddie Lazear was a rare combination —-an extraordinary academic economist and a dedicated public servant who brought that intellect and skill to the solution of big policy problems,” said Condoleezza Rice, director of Stanford’s Hoover Institution, where Professor Lazear held a senior fellowship.In a statement, Mr. Bush called him “a trusted confidant” and “a beloved colleague.”Edward Paul Lazear was born in New York City on Aug. 17, 1948, and grew up in Los Altos, Calif. He graduated from the University of California, Los Angeles, in 1971 and received his Ph.D. in economics from Harvard University, where he worked with the Nobel Prize winner Gary Becker and adopted his approach of applying economic tools to new domains.Professor Lazear began his professional career in 1974 as an assistant professor of economics at the University of Chicago. He taught there for almost 20 years before joining the Stanford faculty.“He was the most natural economist I ever came into contact with,” said Paul Oyer, an economist at Stanford’s Graduate School of Business. “He was a deep economic natural thinker; he was born to be an economist.”Professor Lazear wrote a seminal paper about the relationship between worker pay and a company’s productivity and profits; it was based on a case study of the Safelight Glass Company. Productivity at the business soared when it shifted from paying workers an hourly wage to paying them according to the number of windshields they repaired. Professor Lazear figured out that this improvement hadn’t come about just because people had worked harder to earn more money. Rather, he found, the shift in wage policy had changed the composition of the installers: Slower workers had left the company and faster workers had taken their jobs.Professor Lazear wrote another famous paper explaining the rationale behind mandatory retirement, which was outlawed by Congress in 1986. He proposed that it is worthwhile for companies to pay workers less than what they are worth to the business when they are young, and then to raise their wages over time, to the point where they are paying them more than they are worth. But that, he found, meant that employees would try to hang on to their job for too long. Mandatory retirement thus helped solve the problem.“He is the father of a field that has had a lot of influence in the way firms design compensation and make hiring and retention policies,” said Erik Hurst, a labor economist at the University of Chicago. “This is of first-order importance for how people live their lives.”Professor Lazear fell squarely on the right of the economic policy spectrum. He was a fierce critic of the Obama administration’s fiscal stimulus policies. He later championed the tax cuts signed by President Trump in 2017. He believed in the efficiency of markets and disliked the minimum wage and other government interventions.But even his ideological opponents acknowledged his integrity and commitment to rigorous thinking.“I admired the purity of his commitment to economics,” said Lawrence H. Summers, the former Harvard president and Treasury secretary. “It is very rare among economists who work on things that have a bearing on politics.”Lawrence Katz, a professor of economics at Harvard, said Professor Lazear’s work had often reached conclusions at odds with conservative views and policies.“He was not ideological on all things,” Professor Katz said, pointing out Professor Lazear’s work with Richard B. Freeman on the value of works councils, which are used in many European countries to give workers voice and power to negotiate with employers.Professor Lazear’s work also served to dispel the notion popular among American conservatives that policies that guaranteed job security condemned Europe to high unemployment and low productivity.During the financial crisis of the late 2000s and its aftermath, Professor Lazear was a critical voice demanding attention to the faltering job market as millions of people lost jobs and many people struggled to find work for months or even years.“You can see in his policy work these concerns for workers and their skills and how hard it is to transition between industries,” said Austan Goolsbee, who chaired the Council of Economic Advisers during the Obama administration.Professor Lazear is survived by his wife, Victoria Lazear, and his daughter, Julie Lazear. More