Who changed the financial crisis narrative?
By Matthew Goldstein
So riddle me this: How did we go from blaming “banksters” for all our financial ills to now casting teachers, cops and firefighters as overpaid government slackers who are keeping an economic recovery from picking up steam?
Somewhere, somehow, the narrative of the worst financial crisis since the Great Depression changed. Not too long ago, all the talk was about exotic securities backed by crappy mortgages, inadequate bank regulation, excessive CEO pay and burdensome consumer debt. Now the conversation in Washington and Wall Street is more focused on overly generous pensions for public employees and the levels of government spending on the poor, for education, new roads and middle class health benefits.
This isn’t too say that runaway government deficits aren’t a problem that need to be addressed–most likely with a combination of tax hikes and spending cuts. But the financial crisis didn’t begin in summer 2007 with concern about government spending.
Rather, the crisis sprung from years of loose bank regulation and ridiculously low interest rates, which fueled an unrealistic and unsustainable housing boom that encouraged people to borrow beyond their means to “buy” more home than they could afford. Homes became ATMs, through which people were also encouraged to withdraw what little equity they had to pay for family vacations and hi-tech toys. Average Americans were all too willing to participate in this canard and Wall Street bankers were all to eager to exploit it.
Sure, the federal deficit is higher than ever. But a good chunk of that is due to the fallout from the financial crisis. Super high employment means fewer tax dollars coming into the federal coffers and more money going out to pay for things to help struggling families get by–things like unemployment insurance, food stamps and yes, welfare.
The truth is that much of the current government debt crisis is simply another by product of the financial crisis–a crisis that we all played a role in bringing about. So if we are to get out of this financial slump anytime soon, it’s important to stay focused on how we got here.