The Origin and Impact of Economic Crisis Research paper
The Origin and Impact of the 2008 Economic Crisis
The economic crisis that hit in 2008 had its beginnings nearly thirty years ago under President Ronald Reagan. It was Reagan who ushered in the era of Wall Street de-regulation, which continued under Bush (I), Clinton, Bush (II), and Obama. During that time, the position of Treasury Secretary had been given to men who had maintained important spots in the world of finance, such as Donald Regan (Merrill Lynch), Robert Rubin (Goldman Sachs), Henry Paulson (Goldman Sachs), and Timothy Geithner (President of the Federal Reserve). The close association of the White House with the financial banking industry is more than largely suspect in the light of the crashing economy: it is considered by many to be the one single greatest factor in the crash. Yet many Americans (see the Tea Party movement) linger under the opinion that de-regulation is good and government intrusion is bad. While such may be true on smaller, local scales (as Matt Taibbi shows in Griftopia), the same does not hold in the realm of corporate America where the top 1% in financial services have virtually ripped-off the working classes across the nation, causing the worst recession in years. This paper will examine the origin of the crash and the impact the crisis has had on the American public.
In 2010 Matt Taibbi published an article in Rolling Stone that began loosening the knots, which held big government tightly in big business’ back pocket. The practice of de-regulation, he noted, is literally as old as America’s central banking system, also known as the Fed (which men like Sen. Ron Paul and his supporters are on an unlikely mission to end). Taibbi shows how Goldman Sachs (one of the worst perpetrators of fraud — and one of the biggest winners in the economic crisis — yes, there were winners) had its fingers in the cookie jar all along: From sinking competitors, like Lehman Brothers, to slipping loopholes into 11,000-page bills at the last hour on the Congressional floor, the investment banking turned bank-holding company has been duping the American people since 1929. Taibbi goes one step further and shows how companies like Goldman Sachs were behind the Internet bubble that preceded the economic crisis at the start of the millennium, how they were behind the housing bubble that caused the big crash, how they are behind the oil bubble that has gas prices rising across the nation, and how they are behind the carbon credits con that has Al Gore partnering with Goldman alumni to buy up existing credits, which can later be sold at a profit. Taibbi furiously outs everybody who gains and has gained, starting with “former Goldman CEO Henry Paulsonthe architect of the bailout, a to funnel trillions of Your Dollars to a handful of his old friends on Wall Street” (“The Great American Bubble Machine”).
As documentarians like Charles Ferguson (Inside Job) and like Michael Moore (Capitalism: A Love Story) have shown, the story of the economic crash is one that is supremely complex, but not beyond understanding — and people like Ferguson are out to make others aware of the crime that has been committed. As he stated during his acceptance speech for Best Documentary at the 2011 Academy Awards, “Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that’s wrong” (AP/HuffPost).
Yet even if they are not in tune to what happened and why, ordinary Americans are feeling the effects of the crisis:
Back in February 2009, the U.S. Congress passed an $862 billion “economic stimulus” bill to help the struggling American economy recover from the horrible financial crisis of 2007 and 2008. Right now, federal agencies are spending this stimulus money at the rate of approximately 196 million dollars an hour, and they will continue to spend it in staggering amounts up until the September 30, 2010 deadline. (“Stimulus Waste”)
“Stimulus Waste” then gives a few examples of how that spending is not benefitting ordinary Americans — but he misses where most of it is going. Taibbi, however, does not:
America’s fourth-largest bank goes broke gambling on mortgages, then gets sold to Wells Fargo for $12.7 billion after the latter receives $50 billion in bailout cash and tax breaks from the government. The resulting postmerger bank is now the in the countryFattened by all this bailout cash, incidentally, postmerger Wells Fargo would end up paying out $977 million in bonuses for 2008. (Taibbi Griftopia 243)
While “Stimulus Waste” moans over $15,000 here and $100,000 there, billions are going to the very bankers who caused the crash — because bankers have been rewriting the books for years on how the financial services industry can get away with just about anything (Taibbi “The Great American Bubble Machine”). That anything, in modern parlance, is called derivatives. Essentially, derivatives are like bets. But Michael Moore shows just how complicated those bets can get in Capitalism: A Love Story when he has people from Wall Street try to explain one (which, hilariously, they have great difficulty doing).
Yet none of this tells the story of the crash’s impact on ordinary Americans. Moore briefly shows it in a montage of scenes early on in Capitalism, with a number of housing evictions. But Diane Rowland describes it better: “Since December 2007, the U.S. economy has shed 4.4 million jobs, and as of February, the unemployment rate had risen from 4.9% to 8.1%. Millions of Americans have seen their jobs disappear, incomes decline, and health care coverage become increasingly remote.” Health coverage, Rowland notes, is a particularly sensitive issue in any economic recession — when workers lose their jobs they also lose their coverage. Moore, however, puts things in a different light, showing not losses but increases: (since the 80s) productivity (up 45%), workers’ wages (up 1%), household debt (up 111%), bankruptcies (up 610%), incarcerations (up 355%), sales of antidepressants (up 305%), healthcare costs (up 78%), Dow Jones (up 1,371%), and the ratio of CEO pay vs. workers’ (up 649%) (Moore). All of this coincides with the de-regulation of the financial industry.
J.R. Brent Ritchie confirms that all sectors are being affected by the economic collapse, including tourism: “tourism in Canada and the United States has been, and is being, affected by the current economic crisis (5).” Andrea Louise Campbell, meanwhile, asserts that “conflicts between rich and poor continue to be salient (47).” Simultaneously, non-profit organizations all over the nation struggle — for while people tighten purse strings, non-profits are tightening belts. But while taxpayers’ money has gone into the accounts of companies like AIG who in turn owed money to companies like Goldman Sachs (whose stash of AAA-rated mortgages and credit default swaps started much of the mess), Congress itself is having monetary problems. As currently as of this writing, the United States government is threatening to shut down for the first time in fifteen years because House Republicans and Senate Democrats cannot agree on what to spend the little money they actually have. House Speaker John Boehner asks, “When will the White House and when will Senate Democrats get serious about cutting federal spending?” (Espo). Whatever the conflict, federally funded programs are sure to be getting the axe.
Ron Paul assesses the situation tersely, “We are living in a fantasy world. Our entitlement programs are insolventFinancial reality is going to make itself felt in very uncomfortable ways” (2). As Paul supporters know, things are already uncomfortable. And while son Rand gets his first look at the political arena, Ron is gathering momentum for another presidential election campaign.
Meanwhile, ordinary Americans are trying to figure out whom to fire and whom to support. As Taibbi shows, it is not easy: “I’m going to say something radical about the Tea Partiers. They’re not all crazy. They’re not even always wrong. What they are, and they don’t realize it, is an anachronism. They’re fighting a 1960s battle in a world run by ” (Griftopia 16-17). Taibbi makes clear that the Tea Party is not even homogenous: it is made up of a broad spectrum of individuals (some of whom do not even want to be called Tea Partiers) who are angry and looking for someway to focus their anger.
In conclusion, recouping the losses is not an easy thing to do. When a company like Lehman Brothers can be allowed to collapse while their competition (Goldman Sachs) can be bailed out by tax payer dollars, citizens are going to start wondering how their country got to such a point in the first place. Taibbi wondered the same thing, which is why he wrote his book. How the crash happened and how it has impacted America is a lesson everyone can learn.
AP/HuffPost. Charles Ferguson’s Oscar Speech Rips Wall Street: ‘Inside Job’ Director
Levels Criticism During Acceptance. HuffPost Business. Web. 8 Apr 2011.
Campbell, Andrea Louise. “Is the Economic Crisis Driving Wedges Between Young and Old? Rich and Poor?” Generations 33.3, Fall 2009: 47-53. Print.
Espo, David. “Deadline nears: Shutdown looms without agreement.” Yahoo! News, 8
Apr 2011. Web. 8 Apr 2011.
Moore, Michael, dir. Capitalism: A Love Story. Overture Films, 2009. Film.
Paul, Ron. The Revolution: a manifesto. New York, NY: Grand Central Publishing,
Ritchie, J.R. Brent. “Impacts of the World Recession and Economic Crisis on Tourism:
North America.” Journal of Travel Research February 49.1, 2010: 5-15. Print.
Rowland, Diane. “Health Care and Medicaid — Weathering the Recession.” The New
England Journal of Medicine 360.13, Mar 2009. Print.
“Stimulus Waste.” The Economic Collapse. Web. 8 Apr 2011.
Taibbi, Matt. Griftopia. New York, NY: Spiegel & Grau, 2010. Print.
Taibbi, Matt. “The Great American Bubble Machine.” Rolling Stone. Web. 8 Apr
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