Opinion |

The 2008 Financial Crisis, 10 Years On: It's Not Just the Economy, Stupid

The Great Recession is over but popular resentment is as strong as ever. Maybe it was never really about about the economy

David Rosenberg
David Rosenberg
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When Lehman went bankrupt
When Lehman went bankruptCredit: Mary Altaffer / ASSOCIATED PRESS
David Rosenberg
David Rosenberg

Okay, so the figure for America’s economic growth rate isn’t higher than its unemployment rate for the first time as 100 years, as Trump proudly but falsely claimed this week. But it is higher (4.2% versus 3.9%) for the first time in 10 years, which is pretty remarkable considering how terrifying everything looked a decade ago.

It was on September 15, 2008 that Lehman Brothers filed for Chapter 11 bankruptcy protection, the signal moment when the impact of the U.S. housing crisis became starkly apparent. It wasn’t just about a bunch of hard-luck homeowners and dumb investors that would be hurt but the entire financial system and economy.

The recession that followed was the worst since the World War II, encompassing not just the United States but nearly the entire developed world. The global financial system seized up, housing prices plunged in America and much of Europe, unemployment soared into the double digits and governments spent billions rescuing banks.

But the Great Recession wasn't just about in bankruptcies and bailouts. It engendered political rage. Financial crises have that effect on people, as multiple studies have shown, for the obvious reason that they leave few winners and a lot of losers in their wake. These crises tend to surprise after a period of irrational exuberance, which make the pain even worse.

Government handling of the crisis made for more rage. In America, homeowners for the most part faced foreclosure. But the big financial institutions – the ones that were too big to fail – were rescued. A major byproduct of the policy prescription employed in America and Europe, super-low interest rates, was a stock market boom whose profits went mostly to the wealthiest. There were serious worries that the financial crisis was uncontrollable, that a depression on the scale of the 1930s was inevitable and that the recovery would take years.

One snag

The worst predictions failed to come true: The policy prescriptions worked and the U.S. economy has experienced its longest post-war recovery ever and even Europe after some delays, is enjoying sustained and steady growth.

About the only major macro-economic problem that remains a festering sore is the problem of growing income inequality. But that was a problem long before the Great Recession and is such a slow, insidious process that even the victims don’t necessarily feel it as long as their incomes are rising.

And yet, Americans and Europeans are still angry. This week, a full decade after the Lehman collapse and at a time when their economy is performing well, nearly a fifth of voters in Sweden gave their support to a party with neo-Nazi origins that wants to pull the country out of the European Union.

Apart from being long past its sell-by date, the anger has other interesting (and worrying) features:

# Rightist politics: With a few exceptions, like Greece and France, the rage has been expressed in support for populist and far right parties. The take-away for angry electorates from the trauma of the Great Recession was government is to blame, not business. On the other hand, the populist right and certainly the extreme right have had a spotty record of achieving power. It seems the popular anger is preserved in a minority, but a big enough minority to upset the political order, not take it over.

# The chief targets of the rage: They have not been what you might have expected. Banks remain in the doghouse as far as popular perceptions go, but the reputation of business and the capitalist system managed to emerge from the crisis virtually unscathed. Leftist parties have profited not at all. But the biggest reputational casualty was the expert class – the economists, social scientists and policy wonks to name a few – who failed to anticipate the crisis and sold the public on the idea that economies could be managed.

# The rise of nationalism: Brexit and the widespread anti-EU sentiment in Europe, the crackdown on immigration in the U.S. and Europe, not to mention Trump’s backing off of international trade agreements seem one of the most improbable outcomes of the Great Recession. Globalism didn’t contribute to the original problem and the push-back, far from solving any economic problems, will only make them worse by depriving economies of a bigger labor pool from immigration and the advantages of international trade.

There’s something deeper going on. In other words, for a change it’s not just about the economy, stupid. I wouldn’t rush to say what that is, but I’m willing to hazard that the anger reflects a feeling that the post-war liberal agenda has gone a few steps too far.

In the name of universal values, like freedom, democracy, human rights and equality, it has undone the ties to community, religion and nation that the great majority of people rely on. That goes a long way to explaining why the EU, which is perhaps the most ambitious experiment in pan-nationalism, has become such an unlikely target for the rage.

The most angry – and they are still not a majority – are not only resisting the principles of universalism, they have turned against the people who espouse them. The Great Recession exposed the experts’ shortcomings in a big way and made them vulnerable to a broad attack on everything they know and stand for.

Perhaps universalism has pushed the envelope too far for too many, but the fact remains that the angry class offers no real alternative except to disparage and destroy what there is, a-la Donald Trump or Steve Bannon.



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