It has been almost a decade since the most spectacular economic crisis of the last half century – the Global Financial Crisis (GFC). In approximately a fortnight, it will be exactly nine years since the collapse of the major American bank Lehmann Brothers (which constituted the most dramatic event of the crisis) put into perspective the extent to which the entire global financial system was at risk of collapsing. What is particularly striking about this historical event is that it could have constituted the beginning of a new era of political dominance for the Left but, due to the political miscalculations made in the immediate following months by leaders such as Barack Obama, it can in retrospect be seen as the beginning point for the rise of the populist Right, culminating in Donald Trump’s 2016 election victory.
The GFC demonstrated in dramatic fashion the extent to which the global banking system (including the credit rating agencies) was incapable of governing itself. The event seemed to my eyes (as, at that time, a first year uni student) to also present an opportunity for a new political era. The GFC provided solid empirical evidence that the doctrines of neoliberalism and free-market economics constituted an inherently flawed framework for administering economies in a globalised world. This was, after all, not a crisis caused by an unpredictable external event like a war, but rather was fundamentally inherent to the system itself.
The free-market advocates appeared to have been defeated and voters would consequently be won over by the inherent value of social democratic parties (who prioritised the importance of intervention and regulation of economic markets). My confidence in this outcome was reinforced by the knowledge that, by the end of 2008, the Democrats controlled the US Congress, Senate and the Presidency. It felt like the beginning of a new era.
If future-me was to tell uni-student me that, only two years later, the Republicans would recapture a majority in the Congress and that, in a further eight years, they would control the Congress, Senate AND be led by a President Donald Trump, I would have assumed future-me had become insane. Considering the way that the Global Financial Crisis had played out – how could this outcome have occurred?
In retrospect, it’s clear that much of the responsibility for the resurgence of neoliberalism and the emergence of right wing populism across the Western world lies at the feet of Barack Obama. Indeed, it’s striking how little criticism the former US President attracts from the Left for his strategic errors and political misjudgement in the immediate aftermath of the crisis.
Obama, at the direction of his (heavily Wall Street connected) Treasury Secretary Timothy Geithner, implemented two key responses. The first was a program where the Government purchased the ‘toxic’ worthless loans (ie. the mortgages that couldn’t be paid) from the banks. The second was to implement an $800 billion stimulus program to make up for the huge loss in economic demand (and jobs) caused by the banking crisis.
To be fair, these actions did much to prevent the ensuing recession from becoming a depression (although some economists had argued that the stimulus package was far too small to adequately stabilise the economy). However, the true shortcoming of this approach was that it only addressed the technical aspects of the crisis. This economic focus was, of course, necessary, but it was not sufficient. The political issues presented by the GFC relate to the question of how to pursue justice for the taxpayers that had bailed out the banks and for the people who had lost their jobs. These political issues were not properly dealt with by the Obama Administration and the consequences have reverberated ever since.
There was a fundamental need on Obama’s part to articulate a political narrative of the crisis that illustrated the moral failings of the banking industry and compelled the financial sector to demonstrate meaningful contrition. This was a period in history where the financial class had not only required being bailed out by the taxpayers due to a failure to adequately do their jobs, but the broader public were the ones being punished for it through job losses and wage stagnation. The capacity for this crisis to tear divisions through different sections of American society (as with much of the rest of Western society) was almost inevitable. Accordingly, it was not a time for the language of compromise, stability and unity (which was Obama’s preferred political vernacular) but a time where fingers needed to be pointed and justice had to be seen to be delivered.
Obama’s failure to demand justice is personified in a memorable quote he delivered to a room full of banking CEOs in the months following the crisis: “My administration” he told them, “is the only thing between you and pitchforks.” An obvious question, both at the time and with the benefit of hindsight was; why stand between them? This is not to advocate for actual violence or the sacrifice of economic recovery for the sake of political scalps, but rather to point out that, despite the huge damage the GFC unleashed on millions of lives, no one has ever faced criminal charges. The Obama Administration’s willingness to act as a shield for the banks allowed the public to develop the impression that the state and the banks were one in the same.
Obama could have demanded that the bankers resign or at the least pledge to rescind any future bonuses for a number of years. He could have requested the Department of Justice investigate members of the banking industry for criminal culpability (even if no laws had been technically broken, the message sent to the public would have been clear). These actions should have been communicated through journalists, but also delivered in major public addresses to hallrooms packed with the crowds of grass-root supporters he had amassed in the 2008 election.
It is almost certain that large sections of the Democrat Party (let alone the Republicans) would have been moved to criticise his response as populist and unhelpful and it is similarly likely journalists would have criticised his actions for causing division in his political party. As we have seen from Trump and Bernie Sanders in taking on their respective political parties in 2016 however, this would have been a savvy political move. The public would have been able to see Obama as distinct from both the political and financial establishment that they were so justifiably suspicious of.
An immediate consequence of addressing the policy-side of the banking collapse without balancing it with a demand for justice was that other figures took the opportunity to nominate villains and point the finger. Most famously, CNBC reporter Rick Santelli delivered a fiery TV interview from the floor of the Chicago Mercantile Exchange blaming poor people who took on mortgages that they couldn’t afford on the one hand, and the Federal Government for “rewarding their bad behaviour” on the other hand.
Santelli’s neoliberal framing of the issue might seem spurious, but it fit with the prevailing narratives about free markets that had informed US politics up to that point and, in the absence of a moralistic counter-narrative from the Obama Administration, it was the only real narrative on offer. The Santelli interview is now seen a major step towards the emergence of the populist right Tea Party Movement which directly led to the Republicans retaking Congress in the 2010 midterm elections.
It is certainly possible that no amount of advocacy from Obama could have prevented this outcome in a country wedded to certain notions of free enterprise, but, based on the comments of a President who apparently saw his role as standing between the banking executives and the “pitchforks” of the public, it is also clear that he never really tried. As the writer David Bromwich observed of Obama early in his presidency, he tended to adopt a technocratic position of assuming that his actions would justify themselves: “He expected a gratitude he did not get. His choice of tactics could never have been easy to explain in a climate where so many bankers survived and so many ordinary people lost their homes and jobs.”
From this point on, the Left had lost the capacity to frame the debate and we have seen the following ten years characterised by austerity and the rapid growth of the far Right and nativist politics. It is only recently, through such figures as Jeremy Corbyn, Bernie Sanders and Jean Luc Melenchon that we are seeing the revival of Left political movements advocating for a larger role for government in society. Indeed, it is notable that these individuals couch their arguments in highly moralistic language that identifies specific culprits for the prolonged recession and subsequent wage stagnation that have characterised the last ten years.
To point out Obama’s political errors in the aftermath of the GFC is not to discount the fact that he was a savvy and talented politician. One cannot help but think however, that his brand of soaring rhetoric and progressive technocratism would have made him the perfect candidate in a 1996 or 2000 election when economic growth was consistently high and advocacy for a major program such as healthcare reform would have been consequently easier to make. Indeed, one can only imagine how valuable Obama’s relatively measured decision-making processes might have been in the immediate aftermath of September 11.
On this ninth anniversary of the GFC however, as the prospect of at least four years of a Trump Administration remains and populist movements across the globe show no sign of declining, we can see that Obama was not the right person for the times in which he found himself. While, in retirement, Obama is still largely feted by the Left and retains a ‘cool guy’ persona (which other figure on the Left could receive such a warm reception while kite-surfing with Richard Branson?) it is likely that history will see him as one of the primary factors in why the Left failed to capitalise on the event that posed the greatest threat to the primacy of neoliberalism in a generation.