The Financial Services Bailout: The Catalyst of Today’s Politics?

In 2008, the economy was crashing, and although there were many factors involved, the primary catalyst was the subprime mortgage crisis. I remember that year the economic news was all bad and everything seemed to be in freefall. Treasury Secretary Hank Paulson proposed to buy out $700 billion in mortgage-backed securities. This plan would be crafted into legislation called the Emergency Economic Stabilization Act of 2008. Although this plan had the backing of President Bush, his party was divided. More critically, the bailout was deeply unpopular among the public. Although Pew Research Center found a 57-30 support for the bailout, Bloomberg/Los Angeles Times found 55-31 opposed, and USA Today found only 22% support for Paulson’s proposal, with a majority preferring an alternative plan. The Republican base despised it, and Republicans who voted for it were “2.5 times more likely than Republicans who voted nay to be out of the House by 2010” (Ekins, 2014).

Advocates of the legislation, however, had the ears of the senators when they warned of a catastrophic collapse in the absence of bailouts. In the Senate, the legislation was approved 74-25, with Barack Obama, Hillary Clinton, and John McCain voting for it. Majority Leader Harry Reid and Minority Leader Mitch McConnell voted for the measure as did 69% of the chamber’s Republicans and 80% of its Democrats. More dissent came from the right than the left, but this stood as one the few issues that Jeff Sessions and Bernie Sanders can agree on. The House was a bit more difficult, with the legislation passing 263-171, with 54% of GOP members opposed (including future VP Mike Pence) while 73% of Democrats favored. Again, the leadership of the parties voted for this legislation, including future Speaker of the House Paul Ryan. This could be thought of as an early manifestation of the establishment/populist split we see among the parties today. This bailout led to more measures to bailout people and businesses impacted by the crisis, such as TARP. It finally came to a head on February 19, 2009, when in one of the Obama Administration’s first moves, they proposed to bailout mortgages undergoing foreclosure. CNBC’s Rick Santelli just wouldn’t have it, and delivered one of the more consequential rants of American history on the floor of the Chicago Stock Exchange to the cheers of onlookers:

“Government is promoting bad behavior. . . . Do we really want to subsidize the losers’ mortgages? This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama, are you listening? We’re thinking of having a Chicago Tea Party in July…All you capitalists show up to Lake Michigan, I’m going to start organizing.”

 

 

Santelli’s rant was heard far and wide, and one of the listeners was Jenny Beth Martin. She and her husband had turned down a federal loan to save their house from foreclosure, and the message motivated her into action. In the course of four months she had formed Tea Party Patriots with Amy Kremer and Mark Meckler. Tea Party rallies protesting Obamacare, the Stimulus, and TARP were underway. The following year, the “Tea Party Election” netted the GOP 63 House seats and control of the chamber. Rightist populism was now in vogue and the Tea Party Caucus formed to push policies for reduced federal government and taxation. However, organizational leaders chose not to emphasize social issues to maintain unity on economics. Conservative social issues at the time I recall not being terribly popular and the same-sex marriage movement was rapidly gaining converts. This was before the right was able to pull off “cool” on social media. The loss of the 2012 election convinced many in the GOP that running “safe” candidates such as John McCain and Mitt Romney was not a winning strategy. There was also some leftover frustration from the social right for the GOP’s deemphasis on social issues despite Romney speaking of “self-deportation” for illegal immigrants. This leftover frustration manifested in the candidacy of Rick Santorum in the GOP primary. This would come back with a vengeance and the focal issue would be immigration. On June 16, 2015, real estate mogul and celebrity Donald Trump announced his run for president as a Republican, yet another candidate in the clown car that was the 2016 GOP primary. Defying all mainstream political expectations as well as ridiculous estimates from HuffPo holding that he had a 1% chance of winning the election, he not only won the GOP primary, but the presidential election itself in the greatest American election upset in modernity.

This populist surge in this case was a bit different than the Tea Party version, although many of the same people who supported the Tea Party embraced Trump during the primary. Tea Party leaders, such as Martin, preferred Ted Cruz. Trump ironically had stated support (albeit qualified) for Paulson’s plan at the time as he believed as did many political leaders that letting the banks fail was not an option. Yet, he managed to capitalize on widespread frustrated populism from the same people who despised the bailouts for Wall Street and banks. What Trump’s candidacy did was effectively extend populist appeal beyond the Republican base to people who normally don’t feel like they are heard in the ebb and flow of American politics. Many people identified with third party movements endorsed Trump, including Ross Perot and Pat Buchanan. Notably, InfoWars gained much more attention as did its host, Alex Jones, a rightist who had previously been known for his promotion of conspiracies about:

9/11

The Oklahoma City Bombing

New World Order

The Bohemian Club

Sandy Hook

Vaccinations

FEMA Camps

Monsanto

Gay Frogs

Jones, a man who regarded Bush as an evil warmonger responsible for 9/11 and Obama as a Muslim communist, found a man he could support in Trump. Jones supporting a candidate of any major party, a winning candidate at that, means something massive changed. In truth, I still like to entertain the idea that in 2016 we entered an alternate timeline.

So far, this story has been fairly one-sided, and by one-sided I mean has focused on the GOP. The Democrats, although more supportive of the Emergency Economic Stabilization Act of 2008, were far from universally backing it. However, the growth of Democratic populism was stunted by the election of President Barack Obama. Although a fresh face in politics in 2008, he was ideologically your standard-issue New Deal/Great Society Democrat. Obama represented a return to pre-Reagan Administration politics in his proposal of a massive expansion and creation of entitlements, now popularly known as “Obamacare”. The ways in which he was a dissenter during the Bush Administration were twofold: his opposition to the Iraq War at its start and the usual partisan politics. Obama did not represent a challenge to the establishment, for he was part of his party’s establishment wing even if it didn’t seem that way in 2008. He would have, however, been able to pass more sweeping legislation and spent more than in the first two years had the midterm in the House not been such a “shellacking”, as Obama himself put it. Yet, he was popular and liberal enough to keep the populist wing of the Democrats mostly satisfied.

By 2016, although the economy had recovered, the economic recovery had been quite uneven nationally and cultural issues were making a reappearance, as the prosperous cultural elite left of the coasts went on the offensive on issues regarding transgenderism, intersectionality, radical feminism, and socialism. My personal hypothesis is that this offensive began because its adherents were emboldened by Obama winning reelection in 2012, but diving into that is for another day. Although Hillary Clinton was seemingly the destined choice for Democrats that year, Senator Bernie Sanders of Vermont, an Independent and self-admitted socialist, threw his hat in the ring. Although he lost the primary, he outperformed expectations and excited the populist left, which may prove a much greater factor in the 2020 Democratic primary.

Conclusion

The creation of the Tea Party, the Trump presidency, and Bernie Sanders’s level of support in the Democratic primary can be traced to the enactment of the Emergency Economic Stabilization Act. I am not alone in this thought, as Emily Ekins (2014) of Reason states: “While many think of the tea party as beginning with President Obama’s stimulus plan, TARP under President Bush was the initial catalyst”.

How did I feel about the matter? At first, I thought that perhaps this exception to free market principles was necessary to save many, many jobs, but by the time of the vote I was opposed to the bailout because I, like many Americans, thought that profits and losses should be private. Perhaps if the disaster happened, these institutions would think twice before engaging in the overly risky behavior that resulted in their downfall. Don’t get me wrong, I think not bailing out Wall Street and the banks would have hurt like hell in the short run for everyone, but I think we would have recovered and a recurrence would be much less likely. How did you feel about the bailouts? Has your view changed?

References

Ekins, E. (2014, October 3). Today’s Bailout Anniversary Reminds Us That the Tea Party Is More Than Anti-Obama. Reason.

Retrieved from

https://reason.com/archives/2014/10/03/the-birth-of-the-tea-party-movement-bega

Etheridge, E. (2009, February 20). Rick Santelli: Tea Party Time. The New York Times.

Retrieved from

https://opinionator.blogs.nytimes.com/2009/02/20/rick-santelli-tea-party-time/

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