FacebookTwitterGoogle+RedditEmail

Bernanke, Geithner and Paulson Still Don’t Have a Clue About the Financial Crisis

NYT readers were no doubt disturbed to see a column in  which former Fed Reserve Board chair Ben Bernanke, Obama Treasury Secretary Timothy Geithner, and Bush Treasury Secretary Henry Paulson patted themselves on the back for their performance in the financial crisis. First, as they acknowledge in the piece, all three completely failed to see the crisis coming.

During the years when house prices were getting way out of line with both their long-term trend and rents, Bernanke was a Fed governor, then head of the Council of Economic Advisers, and then Fed chair. He openly dismissed the idea that the run-up in house prices could pose any threat to the economy. Henry Paulson was at Goldman Sachs until he became Treasury Secretary in the middle of 2006. As the bank’s CEO he was personally profiting from the bubble as the bank played a central role in securitizing mortgage backed securities. Timothy Geithner was president of the New York Fed, where he was paid over $400,000 a year to make sure that the Wall Street banks were not taking on excessive risk.

It is bad enough that these three didn’t see the crisis coming, but they still seem utterly clueless. They tell readers:

“Productivity growth was slowing, wages were stagnating, and the share of Americans who were working was shrinking. That put pressure on family incomes even as inequality rose and upward social mobility declined. The desire to maintain relative living standards no doubt contributed to a surge in household borrowing before the crisis.”

Actually productivty growth didn’t begin to slow until 2006, as the bubble was hitting its peak. Growth was quite strong from 2000 to 2005, which means the cause of wage stagnation in those years must lie elsewhere. (If they had access to government trade data they might think the explosion of the trade deficit to 6.0 percent of GDP played a role.) The surge in borrowing clearly preceded the productivity slowdown as could be seen from the plunge in savings rates or reading the papers celebrating people pulling equity out of their homes by some guy named Alan Greenspan.

And then they tell us what a great job they did. After describing how they saved the Wall Street banks from collapsing from their own greed and incompetence (not in those words), they tell us:

“Policymakers certainly didn’t get everything right. But compared to most other countries, America’s post-2008 recovery started sooner, was completed faster and was built on healthier foundations.”

That claim is not at all clear from the data. If we look at wage growth, the story is far from impressive, as shown below.

Real Average Hourly Wage

real wage

Source: Bureau of Labor Statistics.

The real hourly wage peaked in the pre-crisis period at $10.15 an hour in November of 2006. In July of 2014, almost eight years later, the average hourly wage stood at $10.31, just 1.5 percent higher. That is not much to celebrate.

The story on employment looks even worse. The prime age (ages 25 to 54) employment to population rate (EPOP) peaked at 80.1 percent in the first quarter of 2007. It dropped as low as 75.0 percent and was still below 76 percent as late as the third quarter of 2013. By comparison, the EPOP for prime age workers fell by just 1.4 percentage points in Canada and by the third quarter of 2013 it was just 0.6 percentage points below its pre-recession peak. In Australia the EPOP was 1.3 percentage points below its pre-recession peak by the third quarter of 2013. In Germany it was 2.7 percentage points hgher than its pre-recession peak in the third quarter of 2013. It’s true that the U.S. has done better by most measures that Italy, Spain, and Greece, but that is not much of a boast.

The policies put in place also failed to protect homeowners, many of whom were both underwater in their mortgages and unemployed due to the recession. As a result, the homeownership rate fell from a peak of 69.4 percent in 2004 to a low of 63.0 percent in 2016. This is a rate not seen since the 1970s. It actually looks considerably worse when adjusting for the much older age of the population in 2016. There were alternatives that likely would have kept more people in their homes (such as giving underwater homeowners the right to stay in their home as renters), but this clearly was not as big a priority as rescuing the Wall Street banks.

Anyhow, it is good to see this trio warning about Republican efforts to once again weaken regulation of the financial industry, but it would be nice to see them take more responsibility for the incredibly serious failure that ruined millions of lives. Needless to say, all three of them are doing quite well financially.

This column originally appeared on Dean Baker’s Beat the Press blog.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

November 21, 2018
Manuel García, Jr.
Climate Change Action Would Kill Imperialism
Kenneth Surin
Return to Denver: Clouds on the Horizon
Jonathan Cook
Netanyahu’s Ceasefire is Meant to Keep Gaza Imprisoned
John Steppling
Liar Liar
Bill Hackwell
Paradise Lost
Gary Leupp
“Maybe He Did, and Maybe He Didn’t:” Reflections on Morality in 2018
W. T. Whitney
Criminal Behavior: US May be Developing Biological Weapons
Zhivko Illeieff
How Media, Tech, and News Networks Normalize Trump’s Propaganda
NEVE GORDON - NICOLA PERUGINI
Migrant Caravan: Branding Migrants “Human Shields” Has a Deadly Motive
Wouter Hoenderdaal
Jordan Peterson’s Disturbing Views on Inequality
Dean Baker
Nicholas Kristof and the China Trade War
Colin Todhunter
Approaching Development: GMO Propaganda and Neoliberalism vs Localisation and Agroecology
November 20, 2018
John Davis
Geographies of Violence in Southern California
Anthony Pahnke
Abolishing ICE Means Defunding it
Maximilian Werner
Why (Mostly) Men Trophy Hunt: a Biocultural Explanation
Masturah Alatas
Undercutting Female Circumcision
Jack Rasmus
Global Oil Price Deflation 2018 and Beyond
Geoff Dutton
Why High Technology’s Double-Edged Sword is So Hard to Swallow
Binoy Kampmark
Charges Under Seal: US Prosecutors Get Busy With Julian Assange
Rev. William Alberts
America Fiddles While California Burns
Forrest Hylton, Aaron Tauss and Juan Felipe Duque Agudelo
Remaking the Common Good: the Crisis of Public Higher Education in Colombia
Patrick Cockburn
What Can We Learn From a Headmaster Who Refused to Allow His Students to Celebrate Armistice Day?
Clark T. Scott
Our Most Stalwart Company
Tom H. Hastings
Look to the Right for Corruption
Edward Hunt
With Nearly 400,000 Dead in South Sudan, Will the US Finally Change Its Policy?
Thomas Knapp
Hypocrisy Alert: Republicans Agreed with Ocasio-Cortez Until About One Minute Ago
November 19, 2018
David Rosen
Amazon Deal: New York Taxpayers Fund World Biggest Sex-Toy Retailer
Sheldon Richman
Art of the Smear: the Israel Lobby Busted
Chad Hanson
Why Trump is Wrong About the California Wildfires
Dean Baker
Will Progressives Ever Think About How We Structure Markets, Instead of Accepting them as Given?
Robert Fisk
We Remember the Great War, While Palestinians Live It
Dave Lindorff
Pelosi’s Deceptive Plan: Blocking any Tax Rise Could Rule Out Medicare-for-All and Bolstering Social Security
Rick Baum
What Can We Expect From the Democrat “Alternative” Given Their Record in California?
Thomas Scott Tucker
Trump, World War I and the Lessons of Poetry
John W. Whitehead
Red Flag Gun Laws
Newton Finn
On Earth, as in Heaven: the Utopianism of Edward Bellamy
Robert Fantina
Shithole Countries: Made in the USA
René Voss
Have Your Say about Ranching in Our Point Reyes National Seashore
Weekend Edition
November 16, 2018
Friday - Sunday
Jonah Raskin
A California Jew in a Time of Anti-Semitism
Andrew Levine
Whither the Melting Pot?
Joshua Frank
Climate Change and Wildfires: The New Western Travesty
Nick Pemberton
The Revolution’s Here, Please Excuse Me While I Laugh
T.J. Coles
Israel Cannot Use Violent Self-Defense While Occupying Gaza
Rob Urie
Nuclear Weapons are a Nightmare Made in America
Paul Street
Barack von Obamenburg, Herr Donald, and Big Capitalist Hypocrisy: On How Fascism Happens
FacebookTwitterGoogle+RedditEmail