The surge in populist politics that helped fuel President Donald Trump’s victory and the rise of progressives on the left wasn’t triggered by U.S. policy makers’ response to the 2008 financial crisis, former Federal Reserve Chairman Ben Bernanke said Wednesday.
Responding to those who trace today’s political movements to the credit-market collapse a decade ago, Bernanke said at a Brookings Institution event that public dissatisfaction had been rising for decades amid stagnant wage growth and declining upward mobility. Though the economic meltdown and subsequent bank bailouts didn’t help, they weren’t the primary drivers, he said.
“That is a wrong premise,” Bernanke said during a discussion alongside former Treasury Secretaries Timothy Geithner and Hank Paulson of the steps they took to limit damage during the Great Recession and whether actions taken since then can prevent a recurrence.
The three men, who led the U.S. response in 2008, spoke at length about how difficult it was to persuade the public that their rescue of Wall Street was an essential first step that was actually designed to help people stay in their homes and keep their jobs. Paulson said the Fed and the Treasury Department had to make decisions that benefited banks in order to protect the financial system, but the moves were viewed as rewarding “the arsonists.”
“It’s a hard case to make, and we were unable to make it,” Paulson said. Banks made matters worse, he noted, by giving executives big bonuses as their companies recovered. “When the banks were earning big money, they turned around and paid big bonuses,” he said. “That was more than I could stomach.”
For Bernanke, it was difficult to stomach something else: the years of criticism of the Fed program that came to be known as quantitative easing, in which the central bank bought government bonds to boost the economy. The harsh rhetoric is still going on today, he said, with hedge fund managers blaming the program for contributing to inequality. “As if they care,” said Bernanke, who in 2015 began advising hedge fund giant Citadel.
On a day mostly devoted to hindsight, the three men seemed satisfied that they’d performed well a decade ago, even under pressure so extreme that Paulson noted he didn’t have a chance to call his brother who was an executive at Lehman Brothers Holdings Inc. for 10 days after the firm’s collapse. But the former officials were also pressed on the current government’s readiness for another crisis.
Geithner argued that tools the regulators will absolutely need were taken away, including the powers of the Fed and Federal Deposit Insurance Corp. to directly help troubled banks and Treasury’s authority to bolster money market funds. Congress can give them back, but it’s hard to know what the political difficulties will be “as you’re slipping toward the abyss,” he said.
“I don’t think it’s the right choice for us as a country,” Geithner said, adding that rules shoring up bank capital and liquidity have made the industry stronger and need to be preserved.
Paulson said that despite the dysfunction in Washington today, it’s possible the government could again help the financial system through a crisis.
“I don’t ever want to bet against the United States of America and our political system during a crisis,” Paulson said. “A crisis can bring out the best.”