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. 

September 18, 2018
Conn Hallinan
Britain: the Anti-Semitism Debate
Tamara Pearson
Why Mexico’s Next President is No Friend of Migrants
Richard Moser
Both the Commune and Revolution
Nick Pemberton
Serena 15, Tennis Love
Binoy Kampmark
Inconvenient Realities: Climate Change and the South Pacific
Martin Billheimer
La Grand’Route: Waiting for the Bus
John Kendall Hawkins
Seymour Hersh: a Life of Adversarial Democracy at Work
Faisal Khan
Is Israel a Democracy?
John Feffer
The GOP Wants Trumpism…Without Trump
Kim Ives
The Roots of Haiti’s Movement for PetroCaribe Transparency
Dave Lindorff
We Already Have a Fake Billionaire President; Why Would We want a Real One Running in 2020?
Gerry Brown
Is China Springing Debt Traps or Throwing a Lifeline to Countries in Distress?
Pete Tucker
The Washington Post Really Wants to Stop Ben Jealous
Dean Baker
Getting It Wrong Again: Consumer Spending and the Great Recession
September 17, 2018
Melvin Goodman
What is to be Done?
Rob Urie
American Fascism
Patrick Cockburn
The Adults in the White House Trying to Save the US From Trump Are Just as Dangerous as He Is
Jeffrey St. Clair - Alexander Cockburn
The Long Fall of Bob Woodward: From Nixon’s Nemesis to Cheney’s Savoir
Mairead Maguire
Demonization of Russia in a New Cold War Era
Dean Baker
The Bank Bailout of 2008 was Unnecessary
Wim Laven
Hurricane Trump, Season 2
Yves Engler
Smearing Dimitri Lascaris
Ron Jacobs
From ROTC to Revolution and Beyond
Clark T. Scott
The Cannibals of Horsepower
Binoy Kampmark
A Traditional Right: Jimmie Åkesson and the Sweden Democrats
Laura Flanders
History Markers
Weekend Edition
September 14, 2018
Friday - Sunday
Carl Boggs
Obama’s Imperial Presidency
Joshua Frank
From CO2 to Methane, Trump’s Hurricane of Destruction
Jeffrey St. Clair
Maria’s Missing Dead
Andrew Levine
A Bulwark Against the Idiocy of Conservatives Like Brett Kavanaugh
T.J. Coles
Neil deGrasse Tyson: A Celebrity Salesman for the Military-Industrial-Complex
Jeff Ballinger
Nike and Colin Kaepernick: Fronting the Bigots’ Team
David Rosen
Why Stop at Roe? How “Settled Law” Can be Overturned
Gary Olson
Pope Francis and the Battle Over Cultural Terrain
Nick Pemberton
Donald The Victim: A Product of Post-9/11 America
Ramzy Baroud
The Veiled Danger of the ‘Dead’ Oslo Accords
Kevin Martin
U.S. Support for the Bombing of Yemen to Continue
Robert Fisk
A Murder in Aleppo
Robert Hunziker
The Elite World Order in Jitters
Ben Dangl
After 9/11: The Staggering Economic and Human Cost of the War on Terror
Charles Pierson
Invade The Hague! Bolton vs. the ICC
Robert Fantina
Trump and Palestine
Daniel Warner
Hubris on and Off the Court
John Kendall Hawkins
Boning Up on Eternal Recurrence, Kubrick-style: “2001,” Revisited
Haydar Khan
Set Theory of the Left
FacebookTwitterGoogle+RedditEmail