On Remembering the Victims: September 15, 2008 is not a date most Americans recall. But on that day, a little over 16 short years ago, Lehman Brothers declared Chapter 11 bankruptcy. What ensued was a financial crisis that threatened to take down the nation’s economy, and possibly induce a global financial depression. As it was, the nation was plunged into an 18-month recession.
According to a Harvard Business Review study, “…by 2016 the crisis had cost the country 15% of GDP, or $4.6 trillion.” The Federal Reserve estimated pension fund losses at $887 billion. 401k accounts suffered between a 25% and 40% loss in immediate value. According to Forbes, “…the effects on the overall economy were felt for much longer. The unemployment rate did not return to pre-recession levels until 2014, and it took until 2016 for median household incomes to recover.” The financial crisis ended up costing the U.S. Government over $2 trillion. “A 2018 study by the Federal Reserve Board found that the crisis cost every single American approximately $70,000.” That’s a lot of financial hurt and a lot of victims.
The reason the 2008 financial crisis is relevant today is it is a stunning example of how financial fraud, left unchecked, makes all of us victims. To put it simply, the banks and financial institutions engaged in massive home mortgage speculation by over-valuing the assets of those they were loaning money to. It was a house of cards that caused the failure of one of the nation’s biggest banks, and threatened to take them all down. This was made possible by the deregulation of the finance industry over several decades. The lesson was simple. Loan collateral needs to be regulated to keep the economy from crashing.
Now that our memories have been jogged, we might want to recall how we all felt about the government’s reaction. It focused on propping up the financial institutions and averting a recession becoming a depression. That part was grudgingly accepted. What didn’t go down well is that no banking official was held accountable. In fact, many became more profitable as a result of the “bailout”. You may even remember the outcry to put all these financial manipulators in jail. For a moment in our nation’s history, our fawning over the wealthy, dimmed. We even classified them as criminals. When fraud hits us all, we get clarity about who and what’s to blame.
In the wake of the 2008 collapse, Congress enacted the 2010 Dodd/Frank Act, which re-regulated the banking industry in an effort to avoid a similar meltdown in our banking industry. New York State, the home of one of the nation’s great financial centers, tuned up a number of financial fraud statutes that date back to 1956. Politicians from both parties made an issue of the bankers getting off scot-free. In spite of the public anger and the political promises, in 2018, with a political system dependent on Wall Street campaign contributions, significant parts of Dodd-Frank were rolled back. The amazing result of the 2008 crisis was that most of the guilty bankers and speculators got richer and ultimately slipped much of the restraints put on them immediately after the crisis. Instead, the price for these “victimless” crimes was paid for in lost homes, lost jobs, lost retirement security and personal hardship.
Given our 2008 experience, it should be impossible to close our eyes and say financial manipulators have no victims. We have a current situation, where real estate holdings were massively inflated to justify loans that would not have been otherwise granted. Those who say “no one got hurt” or “there were no victims” are forgetting how we all were victimized by exactly such business practices, a short time ago. We may want to make that a lesser consideration when judging a candidate or casting our votes. That’s our democratic right. But to claim the behavior is without consequences, ignores the reality. A reality that nearly plunged this nation and the entire globe, into a second Depression.
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