The years leading up to the stock market crash in December 2008 were a classic example of an economic disaster that never should have happened. A minority of financial experts had cited obvious signs of a seriously weakening economy. Yet the leaders of our most prestigious financial institutions, and the government agencies that were supposed to regulate them, were oblivious to the dangers.
Why? They chose to believe in the leaders of their most trusted financial organizations like Lehman Brothers, Bear Stearns and J.P. Morgan Chase, and the stellar reputation of Bernie Madoff, especially with the Securities and Exchange Commission, rather than their critics.
The major cause of the crash was the default of consolidated mortgage-backed securities consisting of subprime housing loans. Financial organizations claimed they could ensure against default by combining them into packages, resulting in higher credit rating and better returns. When large numbers of homeowners, many of whom should never have been given loans in the first place, defaulted, investors panicked, sold their holdings and the whole stock market tanked.
Start the day smarter. Get all the news you need in your inbox each morning.
Bernie Madoff’s greatest Ponzi scheme in history also made the economy worse. He caused millions of investors to lose, in many cases, their life savings. Over the course of at least 17 years, he defrauded investors of over $60 billion, and most of that money evaporated from the economy and into the pockets of the insiders of the scheme. He got away with it because he had a reputation as an ethical and knowledgable investor, adviser, and broker for others.
The stock market crash, not an SEC investigation, was what exposed Bernie Madoff’s Ponzi scheme. His investors wanted their money back. He could not deliver, and on Dec. 11 of that year, he was arrested for fraudulent behavior.
Today, our leaders are ignoring economic realities again, and it’s worse. In 2008 our two political parties were aware of the dangers of crony and predatory capitalism, and believed in small-d democratic capitalism managed by responsible elected politicians. Now we have a political party that wants to eliminate or reduce funding of many government organizations like the FBI and IRS that protect interests of the general public.
The IRS needs more agents to replace retiring agents. More agents will increase revenues by auditing many more tax returns of our wealthiest citizens and businesses. They will not audit the tax returns of those who don’t have enough money and little opportunity to finagle the tax code. The FBI needs more of those tax funds to protect us from international and national threats to our safety, economy and quality of life.
Conservative arguments about big vs. small or more vs. less government are misleading. The issue is always good vs. bad government, federal or local. Our new “America first” members of the House don’t believe in a good federal government. They are oblivious to a host of growing worldwide problems, because they’re misinformed or deliberately obtuse for political reasons. They see their roles as protectors of the wealthy and powerful, not as protectors of the general welfare.
Their main priority is to “starve the beast.” By cutting taxes on billionaires, millionaires and the prosperous middle class they can successfully make the case that we cannot afford to continue funding popular programs like Social Security, Medicare and other programs that primarily benefit workers, the lower middle class and poor.
The U.S. can address costly worldwide inflation only by negotiating with our allies to find mutually beneficial solutions. It looks like the increasing damage of climate change is going to raise costs in all countries, as are all the other usual causes: international preparations for war, possible pandemics, supply chain failures and so on. But America Firsters see these problems as excuses perpetrated by Democrats who want to adequately fund government.
Former President Trump made our international relations worse when he threatened to leave the United Nations. He not only alienated our allies, he sought associations with Russia, North Korea, Saudi Arabia and other dictatorial countries, which have no interest in helping the U.S.
Fortunately, President Biden vastly improved our relationships with our allies and other democracies. Worldwide inflation now isn’t nearly as bad for the U.S. as it is in most other countries.
The often quoted Spanish philosopher George Santayana noted that “Those who don’t know history are destined to repeat it.” We’re repeating the years that led to the stock market crash of December 2008.
Fairview’s Chuck Kelly is author of “The Destructive Achiever; power and ethics in the American corporation” and “Why capitalism thrives—and how it self-destructs.” He can be reached at email@example.com.
This article originally appeared on Asheville Citizen Times: Opinion: Today’s Wall Street oblivion — worse than it was in 2008