Hindsight isn’t always 20/20. So far removed from 2008, many politicians, and some economists have reframed the events of 2008 as the “Financial Crisis” in a way that didn’t make it seem so bad. In fact, it was a global meltdown. In 2008, I was working as a VP of Human Resources, and already engaged in a Sociology of Markets. What I saw was not a “business cycle” or even a “crisis” as worker after worker paraded through my office as I laid them off. What I saw was complete and utter economic devastation first on the micro level, and then on a global level.
Paul Krugman is taking some heat for suggesting that it was really small shadow banks and mortgage lenders (like Countrywide Mortgage) that was responsible for the “financial crisis” and that banks really aren’t too big. Rightly, he’s taking some heat for that. Clearly, Dr. Krugman had some political skin in the game, and that’s okay. However, to suggest that a tiny mortgage lender in Colorado took out half the GDP of NATO is ridiculous on its face. There’s something else worth remembering – yesterday’s Bear Sterns and Lehman Brothers is today’s Citibank and JP Morgan Chase. Remember – in the TARP agreement, with the elimination of investment versus commercial banks, commercial banks were required to buy the smoldering ashes of the investment banks, along with their “shadows.” In the post-2008 Apocalyptic world, shadow banking IS commercial banking. It’s an arrangement of institutions that society can’t seem to live without.
In the Summer of 2008, I was noticing some strange behavior in the markets. Other than precipitous drops in the investment banks, which I wasn’t really concerned with that the time, my company was dependent on two main sectors: new home construction, and manufacturing, which were leading economic indicators. I was used to seeing one or the other move cyclically, but this time I was seeing both move (mainly down) synchronistically. Additionally, the VIX was going wild. I sent an email to my CFO that simply said: “BRACE FOR IMPACT!” with some charts attached. This wasn’t “cyclical.”
I immediately moved my entire 401(k) to Treasuries – something I was lucky enough to have the ability to do. Prices on Treasuries were still low (though rising), and when the smoke cleared, I only lost $1000 as everyone plus their relatives flooded the Treasury bond market, driving prices up. Most were not so lucky.
Within three months, the stock exchanges around the world were shutting down on “sell triggers” on an hourly basis, the VIX was convulsing violently, and Jim Cramer, “Mr. Bull Market” was screaming at Fed Chair Ben Bernanke to open the Fed’s Discount Window – the “Nuclear Option” of depression monetarism. In Cramer’s words: “We have Armageddon!”
I watched in awe as Iceland, Ireland, Spain, and Greece all declared emergencies, capital controls, and bankruptcies. I watched in awe as home after home across all the places I wanted to retire someday, were either burned to the ground, or rotted to the ground in foreclosures.
My company, like most others, was on “austerity budget,” trying to stay afloat without laying anyone off, hoping the storm would pass. I renegotiated health insurance & worker’s comp insurance, saving an extra $5 Million. It also required the CEO to give up his “Cadillac Insurance.” He wasn’t too happy with that. Everyone took a 12% pay cut, including the CEO, that would never return – except for the CEO. When cash flow picked up enough, he got his 12% back – along with his Cadillac health insurance.
With credit markets in the Ice Age, it eventually became impossible to stay afloat, especially with the HR budget that we had. The only way for the company to survive was to start rounds of layoffs. The CEO said that the less senior people got thrown overboard first – a much different tack from what other companies were doing. He felt that if I threw the most senior people overboard, they would vote to unionize before they got their pink slips, and under the National Labor Relations Act, I couldn’t lay them off at that point. The CEO also felt that if the more senior people saw the blood in the water, it would “deescalate” any union mumblings. It did. The company would survive, but to this day, it is only a shadow of its former self, with raises for the CEO of course.
After 20 years in Human Resources, I no longer work in the Human Resource field.
Without getting into the technicalities of derivative swaps, the 2008 “Financial Crisis” wasn’t just about mortgages. It wasn’t about some off-the-grid mortgage company in Colorado. It wasn’t even about people taking out bad mortgages. And it wasn’t just about a crisis in finance. It was a socially and economically devastating series of events created by an arrangement of social institutions that were rooted in finance capital – which was creating debt in credit markets to fuel debt in housing markets – backed by the full faith and credit of the U.S. Treasury. These series of events destroyed homes, families, the labour force, cities, and entire nations. It crossed all sociopolitical and socioeconomic lines. It has forever changed the structure and nature of both labour and capital.
This wasn’t a “crisis.” This was (in my words) an Economic Apocalypse. Or in Jim Cramer’s words, who is usually over-optimistic about markets, “We have Armageddon!” There is nothing in the system – nothing in the arrangement of institutions – nothing in the politics that has changed in any significant way that says that these events cannot happen again. Banks were too big to fail then, and they’re too big to fail now. The only difference is that instead of Lehman or Bear trading derivative swaps, it’s now Citigroup and JP Morgan Chase.
The facts are not in dispute. As minimizing as some economists and politicians want to make it, revisionist history doesn’t work so well on people whose memories are still fresh because they still feel the consequences.