One Year Later: The Lessons of a Failed Economic Philosophy

Exactly one year ago today, the bankruptcy of Lehman Brothers capped a series of calamitous economic events that sent financial shockwaves throughout the world's economies. From the bailouts of AIG, Fannie Mae and Freddie Mac; to the collapse of Lehman; to the sale of Merrill Lynch, the fall of 2008 brought to American markets a financial tempest that overturned the lives of hundreds of thousands of Americans and left millions of others anxious about the long-term stability of their investments and their livelihood. 
 


The causes of the crises have been reported: years of lax attention given to massive leveraging of debt, laissez faire government regulations and the seemingly willful ignorance of Wall Street's risk assessment firms directly led to that precipitous moment. 
 


Unfortunately, it is also clear that we are no more insulated from such a similar crisis today than we were one year ago. Congress has not changed a single rule, habit or practice to stop this economic calamity from happening again. Meanwhile, media outlets have revealed that Wall Street refuses to self-correct its reckless behavior: firms are packaging life insurance policies together into complex securities to be sold off to investors and lavish corporate bonuses are making a comeback.
 


By its inaction, Congress is taking a dangerous risk with the livelihood of millions and with the credit of our own government. We must act with foresight, and we must act now. 
 


Since the collapse of Lehman, the phrase "too big too fail" has become commonplace in our political lexicon. Our banking and credit system stands on just a handful of institutional pillars. Bank of America, JP Morgan Chase and Wells Fargo combined have more than one third of all deposits in the United States. Include Citibank and Merrill Lynch in this group and these five corporations represent almost two out of every three credit card issuers in the country. Imagine if one of these institutions were to fail today? What will have changed?


We cannot allow this systemic risk to our economy to continue. We cannot act in a manner that suggests that massive government intervention of the type we have seen in the last year is or should be the norm. We must take preventative action that will negate the need for future burdens on taxpayers. As such, we cannot and should not delay passage of necessary regulations, allow banks to continue to operate at their current size and continue to neglect the small and medium size institutions that are a vital part of our communities.

Yesterday, the president said that we must "close the loopholes that were at the heart of the crisis." He called for the creation of a regulatory oversight council to work parallel to the Federal Reserve, stronger capital and liquidity requirements for financial firms, and greater regulation of the type of risky behavior that led to last year's crisis. Congress should not delay holding hearings on any of these important measures and sending something to the President for his signature.
 


In my opinion, however, part of this debate must also be an honest assessment and rejection of the irresponsible economic philosophy that exacerbated our march to the brink.

Over the last eight years, passing tax cuts for the wealthiest, embracing policies that encouraged corporations to ship jobs overseas, and promoting trade policies that hurt American workers created an economic foundation built on a pile of sand. 
Middle class America was on the receiving end of these disastrous policies, and as a result, they took on more and more debt. Families paid for exploding health care costs, tuition bills and basic household items with credit cards and home equity loans, creating a tragic cycle of insecurity. Now, as people who were forced to live on credit rather than save for a rainy day lose their jobs, they have nothing else to fall back on. 
 


Last week, the Census Bureau's annual report on income, poverty and health insurance, revealed that in the last decade, media household income has actually fallen. The Census Bureau has been monitoring household income for four decades. Not only have we experienced the first decade where median income has failed to rise, but it appears that this is the first decade on record where household income has declined.

Voters must not forget that the blame falls not just on the corporations that chose profits over sound policy, but that blame also falls on Congress who deliberately ignored the plight of working families over the last eight years.

Throughout his career in Congress, my likely Republican opponent was one of George W. Bush's biggest cheerleaders in Congress. Mark Kirk voted to support every single tax cut for the wealthiest 1%, every single budget that borrowed billions of dollars, and every single corporate subsidy for special interests that were putting profits over people.
 


Just as Wall Street has learned little from its prior bad acts, so too has Congressman Kirk been oblivious to the errors of his ways. Indeed, even recently, when President Obama proposed cutting taxes for the middle class, spending money on vital projects to create and save jobs, increasing unemployment benefits for those who lost their jobs, and rebuilding crumbling schools to invest in our children's future, Congressman Kirk voted no.
 


Last Friday, new Census figures drafted the definitive record on Bush's presidency and Congressman Kirk's economic philosophy. Those figures show that over the eight years that Congressman Kirk helped to implement George W. Bush's economic policies, median household income fell 4.2 percent, the number of children living in poverty increased by almost three million, and the number of uninsured increased by nearly eight million. 
 


As we move forward in enacting long-overdue regulatory reforms that will increase accountability on Wall Street, we must also hold those in Congress accountable for their errors as well and embrace new, pragmatic, and progressive economic philosophies that will protect our economic system for generations. 
 


In the coming weeks I will lay out an economic plan that will focus on creating jobs and investing in our future. 
 


An equally important component of this plan will be to take the lessons learned from the past year and put into place the rules and regulations that will ensure the foundation of the 21st century economy is solid, protects middle class families and departs from the havoc wrought by the failed economic philosophy of the past.


 

Follow Alexi Giannoulias on Twitter: www.twitter.com/Alexi4Illinois

Comments

[CaptD]

Why is it that we the folks that are paying for the Health Care of Congress (and everything else) have to put up with all this Rep. media disinformation? I say, either get on with a "Great Plan" for all Americans or instantly repeal the coverage that Congress is now getting, because they don't deserve any better coverage than we do! It's put up or Shut Up time for all the GREEDY members of Congress..­. Make quality health care affordable or prepare to enjoy poor care like the rest of America has...

[Matt7]

"Congress has not changed a single rule, habit or practice to stop this economic calamity from happening again. Meanwhile, media outlets have revealed that Wall Street refuses to self-correct its reckless behavior: firms are packaging life insurance policies together into complex securities to be sold off to investors and lavish corporate bonuses are making a comeback.
 


By its inaction, Congress is taking a dangerous risk with the livelihood of millions and with the credit of our own government. We must act with foresight, and we must act now." 
 


With a heavily Democratic Congress, failure to act, and soon, does not bode well for this Administration (whose shoulders it unfortunately falls on); nor does it do much to allay Americans' fears regarding "the government" as an unresponsive, disinterested "entity," separate and apart from themselves, that is unconcerned about the interests of average citizens. Maybe that never was among the goals of the financial sector, and it's the "average Americans" who are the fools to have thought so.

I believe our President can get this thing done. It would have made it easier with a principle-centered Congress.

I've heard the insurance and banking industries described as "cartels." How appropriate that seems . . .

[Chris Riley]

We need to reinstate the Glass-Steagall Act and rid ourselves of "too big to fail" entities. Otherwise, we'll be forever held hostage by them.

"History records that business cycles occur despite hell or high water. "

True, but they were never this extreme during the years between the enactment of Glass-Steagall (1933) and it's repeal by the Gramm-Leach-Bliley Act (1999).

Wall Street is the petulant child than cannot be left without adult supervision.

[Weehawk]

And if we don't succeed in getting real reform and regulation of these businesses, the next crash will occur soon, and be many times worse than this one. Maybe then people will be properly motivated to change this criminal system.

[realpolitic]

If there was one thing the Bush presidency revealed is that tax cuts for the wealthy do not work as economic policy, In fact, as the article says middle class incomes fell during the Bush years and poverty increased. Income extremes in society grew more than ever. So when the economy imploded what did Republican lawmakers ask for more of - of course, more tax cuts for the wealthy. These Republican lawmakers are completely clueless.

[Arithrianos]

not clueless, just slaves to the coprarate bribes, they know full well the disasters they cause, they just don't care.

[ClarcKing]

It is time to treat the Wall St. cabal and bankers as serial killers; communicating that they are unable to control themselves; the United States government's duty is to arrest this situation. Stop the usury, speculation in every sector of the economy, Recover the bailout trillions. As per Lyndon Larouche: put the Fed into bankruptcy protection, banks that qualify will join the U.S. National Bank. This is our firewall protection from the international monetary financial derivative debt based global economic killing machine. We will dispose of all toxic assets; anyone coming with debts, investor instrument­s/products­, whatever, will be subject to the financial integrity test and disposed of as not payable if warranted. Issue credits and currency into the population's physical economy. Stop the foreclosures; enact the Homeowners and Bank protection Act. I can not believe our political leadership would allow such an unsafe, uncivil, family hating situation to fester any longer. Stop the foreclosures and the homelessness of one million children. Jobs and purchasing power will be introduced into the economy via infrastructure projects. Healthcare will be provided simply by expanding Social Security and Medicaid. Re-enact the Hill-Burton Act, the general hospital system with single payer feature. Confront the economic and production contraction: Infrastructure projects will support Water, food, energy and transportation systems/production levels and will be increased where possible. If the United States does not implement economy formation measures the U.S. economy will stop functioning. What are we waiting for? www.larouchepac.com

[krocklin]

The Middle Class has always been a pawn of The Rich. The trouble is, there is less wealth left to trickle down.

[mratcheson]

Sec Giannoulias, thank you for your thoughts, I look forward to hearing your economic plan.

For the record, unless I was having a very bad dream, Merrill Lynch is no longer a separate corporation, and therefore cannot be one of the five corporations you cite as being too big to fail. It is now a part of Bank of America.

[Rule Of Law]

"The causes of the crises have been reported: years of lax attention given to massive leveraging of debt, laissez faire government regulations and the seemingly willful ignorance of Wall Street..."

Thank you for laying the blame for the crash where it belongs, and not, as so many have tried to do, at the feet of the People.

I know the operative modifier in that sentence is "seemingly­"--because as you and I and the American People all know, there was nothing ignorant or haphazard about Wall Street's behavior.

If Lehman had been put through receivership as required by federal law, this entire crises may have been averted, or at least minimized. But the fix was in to open the Casino 24/7 and let Wall Street take our money and begin buying up competitors, Industry, and real estate on the cheap.

That was the name of the game from the start, and that's why I appreciate your placing blame where it belongs. The American People have been fleeced once again. Only strong re-regulation will stop it occurring again. And if you expect to serve in Congress under President Obama for his two terms, tell him that we want, we need, Jobs. And we need them now. Or you may find yourself working for someone less inclined to listen to your good counsel.

[Benblanken]

Obama, in his dutch-uncle speech to Wall Street, wildly unapplauded, claimed he'd make sure we'll never have another economic crisis like now. How naive. History records that business cycles occur despite hell or high water. Even so, Obama again sticks his foot in his mouth for the umpteenth time. He shows no signs of backing off his nearly daily campaign speech, to what effect? Maybe we'll all soon get fed up with him. Even later would be ok.