It didn’t have to be this way.
That chart at the right from Bill McBride at Calculated Risk depicts the job losses in each of the 11 recessions since WWII. That ugly red line is our current mess. Using the measuring standard of the percentage of job losses, our current mess has been deeper than any of the earlier 10 recessions, and has lasted much longer.
That’s the crater left by the bomb that was the financial crisis.
It didn’t have to be this way.
That’s not just my conclusion. Note these bullet points from the preface of the January 2011 Financial Crisis Inquiry Commission final report [pdf] (emphasis in the original), especially that first one:
• We conclude this financial crisis was avoidable. The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. . . .
• We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts, in no small part due to the widely accepted faith in the selfcorrecting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. . . .
• We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis. There was a view that instincts for self-preservation inside major financial firms would shield them from fatal risk-taking without the need for a steady regulatory hand, which, the firms argued, would stifle innovation. Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. . . .
• We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis. . . .
• We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets. . . .
As our report shows, key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of 2007 and 2008. Other agencies were also behind the curve. They were hampered because they did not have a clear grasp of the financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. This was in no small measure due to the lack of transparency in key markets. They thought risk had been diversified when, in fact, it had been concentrated. Time and again, from the spring of 2007 on, policy makers and regulators were caught off guard as the contagion spread, responding on an ad hoc basis with specific programs to put fingers in the dike. There was no comprehensive and strategic plan for containment, because they lacked a full understanding of the risks and interconnections in the financial markets.
• We conclude there was a systemic breakdown in accountability and ethics. . . .
• We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
• We conclude over-the-counter derivatives contributed significantly to this crisis.
• We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.
Those are the conclusions of the FCIC about what happened in 2007 and 2008, during the anti-regulatory, anti-accountability, anti-government days of the Republican administration of George W. Bush. As they note, the seeds of the crisis were planted much farther back, but the eight years of GOP control of regulations and regulators allowed this financial bomb to be assembled and lit the fuse that set it off. This is a feature of GOP policies, not a bug.
Which brings us back to that graph at the top, and some of the other graphs from CR.
Yes, the employment trend is moving in the right direction, but it’s got a ways to go to get back to where things were and long-term unemployment is still way out of hand. The answer is not simply “give them education to learn new skills” because recent college grads — those with the most up-to-date education around — are also having a terrible time getting jobs in their fields commensurate with their levels of education.
That movement in the right direction could have been better, save for GOP-imposed austerity in state and local governments. State and local governments have been laying off employees — teachers, sanitation workers, park employees, etc. — and the federal government is still downsizing, adding the the problem. Says Bill McBride: “Overall government employment has seen an unprecedented decline over the last 3+ years (not seen since the Depression).”
It didn’t have to be this way.
As I ponder the ballot choices I’ll have in Missouri, I’m struck not by the big top-line battle between Obama and Romney. God knows I don’t want the anti-regulatory, anti-accountability GOP back in the White House. But even if Obama is returned to the White House, the GOP obstructionism will continue in Congress.
No, the place that offers the best chances for change is down-ticket. Senate and House races matter, but even more important are statewide offices, state legislative races, and local contests. Look at Sandy: when local mayors start to scream, even DC listens. When aldermen and county executives start to scream, DC takes notice.
I don’t live in Massachusetts, where Elizabeth Warren is on the ballot. But I want people like her in my city hall, in my county government, in my state government. There’s a big crater that still needs to be filled, and getting local officials in office who are willing to scream for accountability, for regulation, and for good government that addresses the needs of the people is probably the most direct way I can help change things in DC.
h/t to Bill McBride of Calculated Risk for the graph at the top, and all the other wonderful charts he makes available for anyone to use at Calculated Risk.