MarksJarvis: Financial crisis remains a 'festering sore'

Officials who guided U.S. through meltdown say their actions were necessary

Do the political leaders who required you to bail out Wall Street in 2008 know how angry you and other Americans remain five years after the financial crisis?

They do. In fact, politicians and government officials who were involved in the bailout are so aware of the sense of betrayal among Americans, they worry that if the federal government needs to rally the public in a crisis, politicians will fail to win the people's trust or support.

"It continues to be a festering sore" for the country, said David Axelrod, director of the University of Chicago Institute of Politics and a former senior adviser to President Barack Obama.

Neel Kashkari, a former assistant secretary of the Treasury during the bailout, thinks the polarization at the heart of politics today is a direct result of the "great anger" that lingers as a result of the $700 billion bailout he helped implement in the midst of the 2008 financial meltdown.

"We had to do things that violated our values and sense of fairness and free markets," he said. He realizes that Americans, who were behaving themselves, had to pick up the tab for bankers who put the world at risk of a depression.

The two were among more than a dozen government and economic experts who spoke Tuesday at a financial crisis symposium sponsored by the University of Chicago Institute of Politics and the Paulson Institute. Axelrod said it was intended to help participants spot the "need to clean up our messes."

Yet the forum was primarily a retrospective on the emergency steps leaders such as then-Treasury Secretary Henry Paulson, now chairman of the Paulson Institute, said he had to take during the crisis.

When asked about the millions in bonuses bankers collected after getting bailed out by the public in 2008, Paulson said he hadn't attached strings to the bailout because he was afraid banks would refuse the capital they needed to survive.

"I believe the public is very angry about the bonuses," he said. "I was frustrated by the bonuses too. It showed an incredible lack of awareness and lack of gratitude."

He was not asked about the profits banks have accumulated since 2008, or why banks were not required to provide loans to people and businesses who normally would have qualified. That lack of credit strangled companies' ability to run their businesses, sparking layoffs and deterring hiring. And without access to mortgages, consumers were shut out of the housing market.

"Our highest priority was to avoid a great depression," Kashkari said in an interview. "We couldn't force banks. We had to make their medicine grape flavor so they would take it."

Almost five years after the recession, a Gallup poll recently found that more than 40 percent of Americans still feel insecure about jobs — worrying about losing jobs, having their pay reduced or losing benefits. Unemployment is still at recessionary levels.

Although Americans keep asking political leaders why no executive has gone to prison, former U.S. Rep. Barney Frank said in an interview that the financial crisis cases "were too ambiguous to prosecute." He said the Dodd-Frank legislation, aimed at preventing future failures of large institutions, would make prosecution easier in the future.

Advocates for more prosecution, such as Dennis Kelleher, of Better Markets, have claimed apart from the forum that "Wall Street is a high-crime area and has been on a crime spree for years." He said recently that by not prosecuting bank executives, the government has "rewarded and incentivized more crime."

Former Securities and Exchange Commission Chairman Mary Schapiro said the SEC has been diligent in pursuing wrongdoing, but cases take time to develop and agencies such as the SEC and the Commodity Futures Trading Commission have needed more funding and authority.

Americans aren't convinced these steps and others will protect them in the future.

A recent Pew Research poll found that 63 percent of Americans said the nation's economic system is no more secure today than it was before the 2008 market crash.

When asked what they thought the biggest threat was to the nation in the future, BlackRock CEO Laurence Fink, and Charles Schwab, of Charles Schwab Corp., said the ticking time bomb is a retirement crisis because few Americans have saved and invested adequately for their future. Frederick Waddell, chairman of Northern Trust, is worried about underfunded pensions, and Ruth Porat, chief financial officer of Morgan Stanley, emphasized student loan defaults.

gmarksjarvis@tribune.com

Twitter @gailmarksjarvis

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