When the history of the great crash of 2008 is written, one date and one name will stand out above all others: the date, "August 1, 2008;" the name, "House Speaker Nancy Pelosi."
It was 11:23AM when the Speaker called a Congressional recess. She sent Congress home without passing an offshore oil drilling bill. House Pages stood with mouths agape, Sergeants at Arms wept, grown Congressmen and women cried, and the nation fumed in anger and disbelief.
School's out for summer. School's out forever. No more pencils. No more books. No more Pelosi's dirty looks.
The country faced catastrophe, but Nancy Pelosi said go home. AIG was going to default. Lehman Brothers was going bankrupt. Fannie Mae and Freddie Mac were going to be seized. But Nancy Pelosi said go home.
Ordinary Americans had defaulted on their home loans by the hundreds of thousands. It wasn't because they were bad people or that they were greedy or wanted to live in homes they couldn't afford. Rather, they defaulted because they didn't have money.
As my teenage daughter would say, "Dah!"
OK, so where did the money go? Into the gas pump! The price on the world market went from $60 a barrel in November 2006, to $147.27 a barrel on July 11, 2008. The price of gas went from $2.16 a gallon on November 4, 2006, at the midterm elections, to $4.15 by July 15, 2008. That meant the price of a 20 gallon fill-up went from $43.20 to $83.00, an increase of $39.80. For a two car family that gases each car twice a week, that meant an increase of $159.20 a week, or $684.56 a month.
The increase put millions of Americans in default on their mortgage as if locusts had devoured their paychecks. As the price increase rippled through the economy, the price of electricity increased, the price of heating oil bulged, the price of food spiked, and the price of everything skyrocketed. At the end of the month nothing was left to pay the mortgage.
It was $700 billion a year that was sucked out of this country to foreign oil. It went to Venezuela, Russia, and to the Arab Oil Cartel making the Sheriff of Nottingham look was a rank amateur. It went with the ding of each turn of the gas pump dial as if some naughty little Hobbit boy was trying to pull the handle off.
What the gas crisis did was deprive the mortgage, banking, and insurance industries of their fine line of profitability like a gust of wind on a high-wire act. We can blame deregulation, but that's a false accusation because no amount of regulation altered the fact that $700 billion was sucked out of the economy.
It wasn't that bad people got bad loans with adjustable rates. Those loans had been around for half-a-century and we never experienced catastrophic consequences. Deregulation started with Ronald Reagan in the mid 1980's more than 28 years ago, and only the false soothsayers claim it took a quarter of a century to have an impact.
This was a world-wide phenomenon. US deregulation had nothing to do with European, Asian, or South American meltdowns. The only common denominator was oil
The high price of oil in the summer of 2008 was not driven by demand. World oil demand had increased only 3%, which was the same growth rate in 2007 and 2006. Rather, the price rise was "speculator driven" where moneyed interests of hedge funds, wealthy investors, and oil interests bid the price up regardless of demand. The only thing that could stop it was a US commitment to offshore drilling because the mere announcement of the intent to drill frightened the sternest speculator like whirls of bats frightened by smoking torches.
Instead of taking the offshore drilling step to stop the spiral that ultimately collapsed in a financial meltdown, Nancy Pelosi told Congress to go home. The critical months of August and September 2008 passed without relief at the gas pump like a monstrous dark crow drifting on the wind. Defaults on American mortgages reached critical mass, and it wasn't until two months later that Congress finally got around to passing offshore drilling which immediately brought oil prices down.
Oil dropped an astounding 42% in 90 days from its high of $147.27 on July 11, 2008, to $86.59 on October 9, 2008, most of it in September and October. But it was threat and finally the reality of offshore drilling that fired the drop. While many will argue the correlation between offshore drilling and the plunge of oil prices was not perfect, the facts speak for themselves. Offshore drilling had a significant if not decisive impact on oil prices.
The calamity of financial meltdown in 2008 could have been stopped by derailing oil speculators early in the summer. But Nancy Pelosi wanted her precious Democrats to go home and blame the high price of gas on the Republicans. So instead, Congress went on holiday.
The Speaker's bitter refusal to do the people's work hastened, contributed, or more likely caused the disaster we now face. The name Nancy Pelosi will stand out above all others when the history of the great crash of 2008 is written. They will call it the Pelosi Panic of 2008.