How the last banking tumult fuels today’s populist politics
The 2008 financial crisis unleashed a political realignment that rejected perceived elites and establishment figures
Mike Pence and Bernie Sanders are hardly political allies. But in the aftermath of two large bank failures, the conservative former vice president and the democratic socialist senator are striking remarkably similar tones. Pence, a Republican, bemoaned that “we live in a world where certain politically favored businesses are propped up, backstopped and bailed out by government.” Sanders, an independent who caucuses with Democrats, said “we cannot continue down the road of more socialism for the rich and rugged individualism for everyone else.”
Their sentiment reflects the populism that has coursed through both political parties in the 15 years since shaky financial institutions last spurred anxiety about the broader economy. The 2008 financial crisis unleashed a political realignment that rejected perceived elites and establishment figures, often with unpredictable results for Democrats and Republicans alike.
“There is rising discontent with corporate greed, which is less about left versus right than top versus bottom,” said Adam Green, co-founder of the Progressive Change Campaign Committee, which was the first national group to endorse Massachusetts Sen. Elizabeth Warren’s populist-infused 2020 presidential campaign.
In the wake of the 2008 crisis, the Republican Party was overtaken by the tea party movement, which clamored for smaller government and limits to federal spending. Donald Trump was eventually elevated at the expense of more established leaders like Jeb Bush, John Boehner and Paul Ryan.
Among Democrats, Occupy Wall Street activists drew attention to the party’s longstanding ties to big business and went on to help energize Sanders’ aggressive challenge to Hillary Clinton during the 2016 campaign. Warren rose from a Harvard University bankruptcy expert to a national political figure who helped create the Consumer Financial Protection Bureau. That was such a centerpiece of her White House bid that supporters sometimes chanted “CFPB” at her rallies.
Meanwhile, a new generation of younger lawmakers aligned with democratic socialists, including New York Rep. Alexandria Ocasio-Cortez, joined Congress, often toppling longtime incumbents.
The result is a deeply fractured political environment in which members of each party are responding to a base of voters who are skeptical of institutions and uninterested in the political niceties that once ruled Washington.
At the White House on Monday, President Joe Biden sought to navigate those forces by insisting that taxpayers won’t be on the hook for any assistance to failing banks.
“This is an important point: No losses will be borne by the taxpayers,” said Biden, whose early days as vice president under Barack Obama were consumed by the response to the financial crisis.
The current turmoil is different from that era. While the 2008 crisis centered on souring mortgages held by many banks, this week’s trouble seems more narrowly confined to institutions that weren’t properly prepared for rising interest rates.
And while some of Wall Street’s most prominent firms, including Washington Mutual and Bear Stearns, collapsed in 2008, there’s little concern now about the strength of firms that are considered “too big to fail.” That’s because reforms adopted in the wake of the crisis intensified the scrutiny of such institutions, subjecting them to greater regulation, tougher capital requirements and regular stress tests that examine whether they can survive sudden traumas.
Some of the most dramatic moments of the 2008 crisis — including a rare White House meeting between then-President George W. Bush, Democratic nominee Obama and GOP nominee John McCain — happened just weeks before the election. This time, the instability is playing out with the presidential campaign in its infancy.
But those eyeing the White House in 2024 are nonetheless stoking many now-familiar populist themes.
Pence, who has yet to formally declare a presidential campaign, said Biden was “disingenuous” in saying that taxpayers wouldn’t ultimately be responsible for the government’s response to bank failures.
Nikki Haley, Trump’s former U.N. ambassador who declared her presidential campaign last month, was more direct: “The era of big government and corporate bailouts must end.”
Trump, who is mounting his third presidential campaign, turned to stoking fear, predicting another a 1930s-style depression, in a way similar to how he did amid the 2008 crisis.
“WE WILL HAVE A GREAT DEPRESSION FAR BIGGER AND MORE POWERFUL THAN THAT OF 1929,” he wrote on his social media platform. “AS PROOF, THE BANKS ARE ALREADY STARTING TO COLLAPSE!!!”
Asked about Warren and other top Democrats arguing that banking regulations imposed after the 2008 crisis, which Congress reduced during his administration, helping to prevent current problems, Trump told reporters Tuesday that “rollback was a good thing.”
“Otherwise you’d have a lot more banks right now in trouble because they were being eaten alive by regulation,” said Trump, who also complained that interest rates were too high.
Ahead of a widely anticipated presidential campaign, Florida Gov. Ron DeSantis has pushed the GOP’s populist bent into so-called culture wars around race and gender. Without presenting any evidence to support his claim, he said diversity, equity and inclusion requirements at the failed Silicon Valley Bank “diverted from them focusing on their core mission.”
Green said that, just as Warren rode outrage over the 2008 crisis to national political prowess, “Donald Trump clearly has a strategy of out-flanking fellow Republicans and neutralizing Joe Biden on economic populist issues, like he did with Hillary Clinton.”
If regulators are able to quickly tame the current banking tumult, the longer-term political implications may be limited. But the force of populist politics will endure, especially as Congress must decide later this year whether to raise the debt limit, a once routine ritual that now threatens to become a standoff if Republicans refuse to lift the nation’s borrowing authority. Failure to do so would cause a potentially devastating default.
James Henry, a global justice fellow at Yale University and managing director at Sag Harbor Group, an information technology consulting firm, blamed Silicon Valley Bank’s failure on decades of weakened regulations and a “tiny elite” of venture capitalists and bankers connected to top leaders of both parties.
But Henry also said the Biden administration had no choice but to step in, given potentially greater financial threats spreading throughout the tech sector — making the failure fallout difficult to diagnose along ideological lines.
“There are no libertarians in the financial crisis,” Henry said. “Both sides are trying to be bailed out.”
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