Glass Maze Every jumbled pile of person

The Financial Crisis

I just finished listening to the best and clearest explanation I’ve heard yet of what caused the financial crisis, from This American Life. Check it out.

I’m fairly sure that I still don’t understand all the fundamentals here, but I think I know enough to come to some actual conclusions:

• This is real. The problems are intricately bound up in exotic financial instruments that no one outside the financial industry knows anything about, so it feels like they’re not really there. But they are there — just subterranean. As in: hidden, and foundational.
• Our financial system is built on airy vapors. Speculation doesn’t even really capture it — the devices that these people use to lend and borrow money are based on illusions, phantasms, and faith.
• The laissez-faire economic policies of both Republicans and Democrats are pretty much unforgivable. The fact that something as clearly insane as credit default swaps¹ were allowed to go unregulated gives a lot of credence to the notion that our politicians are worthless shills of the banking industry (for more proof: see the 2005 bankruptcy bill).
• The $700 billion bailout that the administration got passed was a bad bill², because it focused on buying up shitty assets, rather than recapitalizing the banks that are sitting on them, in exchange for part ownership. This American Life says it’s the difference between giving some dude $1000 for the privilege of clearing all the toxic crap out of his basement, and only clearing it out in exchange for a stake in his house. No-brainer for the banks, of course, but very bad deal for the rest of us.

The popular canard among some freemarket folk³ is that these upheavals are the kind of cyclical events one must expect in a system that has brought us so much wealth and prosperity — and, as such, must be borne rather than remedied. This is the kind of outrageous bullshit one has come to expect from rightwing ideologues, but in this climate it’s so self-evidently farcical that I doubt it’ll wash, even with the true believers. It’s like someone telling you that we have to let people juggle nuclear warheads, because it’s their right as freedom-loving Americans, and the occasional world-ending nuclear apocalypse is just an unpleasant side effect we have to deal with. It’s just insultingly dumb.

Barak Obama and Joe Biden haven’t exactly covered themselves in glory in these matters, but they’re our best and only hope now. We need leaders who are capable of imagining a world in which the rich are not intrinsically more deserving than everyone else; where the whims of corrupt financiers are not equivalent to public policy. They couldn’t have come at a better time.