It wasn't just right-wing politicians who "reframed the crisis as the result of out-of-control fiscal policy rather than the product of an out-of-control financial sector". I keep coming back and back again to the moment in January 2010 when Barack Obama cut us technocrats who knew what needed to be done off at the knees: "families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I'm proposing specific steps to pay for the $1 trillion that it took to rescue the economy last year. Starting in 2011, we are prepared to freeze government spending for three years..." Martin Wolf reviews Adam Tooz's book Crashed: Martin Wolf: What really went wrong in the 2008 financial crisis?: "'There is a striking similarity between the questions we ask about 1914 and 2008', writes Adam Tooze...
...“How does a great moderation end? How do huge risks build up that are little understood and barely controllable? . . . How do the passions of popular politics shape elite decision-making? Is there any route to international and domestic order? Can we achieve perpetual stability and peace? Does law offer the answer? Or must we rely on the balance of terror and the judgment of technicians and generals?” With these questions, Tooze... finishes his monumental narrative history of 10 years that have reshaped our world....
It does not provide the answers. Instead, Crashed gives readers a detailed and superbly researched account of the origins and consequences of the wave of financial crises that emanated from the core of the global financial system from 2007. The prose is clear. The scholarship remarkable. Even people who have followed this story closely will learn a great deal.... The book examines “the struggle to contain the crisis in three interlocking zones of deep private financial integration: the transatlantic dollar-based financial system, the eurozone and the post-Soviet sphere of eastern Europe”. This implosion “entangled both public and private finances in a doom loop”. The failures of banks forced “scandalous government intervention to rescue private oligopolists”. The Federal Reserve even acted to provide liquidity to banks in other countries....
Tooze concludes... “In its own terms... the response patched together by the US Treasury and the Fed was remarkably successful.” Yet the success of these technocrats, first with support from the Democratic Congress at the end of the administration of George W Bush, and then under a Democratic president, brought the Democrats no political benefits. The adamantine opposition of the Republican party to all efforts to deal sensibly with the aftermath of (or learn from) the crisis reaped the political rewards. Ultimately, their deliberate fomenting of rage led to the election in 2016 of Donald Trump, described here as an “erratic, narcissistic nationalist”....
Given the scale of the crisis, no alternative to a comprehensive state-backed rescue existed. And, given that this was a dollar-based financial system, it had to be led by the Americans. Moreover, because political pressure had already mobilised against fiscal policy action by as early as 2010, central banks, not elected representatives, had to take most of the needed action.... The scale and nature of the required response had significant political consequences. The public was enraged by the size of support for the banks and, even worse, by the payment of the bonuses apparently due to the bankers....
Perhaps most startlingly, conservative politicians in the US, the UK and Germany successfully reframed the crisis as the result of out-of-control fiscal policy rather than the product of an out-of-control financial sector.... At the same time, the financial crisis really had left most countries permanently poorer than had been expected. People were in aggregate worse off. That misery did need to be shared out. The question always was: how.... Resistance to necessary and just debt restructuring, particularly in Greece and Ireland, notably by the ECB, under Jean-Claude Trichet, is just one, albeit crucial, part of this story. Still more important was the failure to force the recapitalisation of the European banking system.... Yet another part of this story is the divergence between an increasingly exasperated US and a recalcitrant Germany over how to handle the crisis.... The eurozone struggled through. But it was a close-run thing....
Tooze’s remark that “the optimistic dogma under which democracy and markets were seen as necessary complements—the mantra of the aftermath of the cold war—was dead....” US power dealt with the crisis. German power shaped the eurozone’s response. Rightwing politics reimagined a financial crisis as a fiscal one. A similar politics also shifted the emphasis from the dangers of economic insecurity and inequality to the threat from immigration. The crisis has, alas, awoken the sleeping ogres of fear and hatred. How, if at all, will liberal democracy survive the age of Trump, Brexit, Putin and Xi? That is the biggest question raised by this transformative decade...
#shouldread
