Pity the Billionaire: The Hard-Times Swindle and the Unlikely Comeback of the Right

by Thomas Frank

  The Populist Moment

  You can quibble with my language, but little of the foregoing is a matter of opinion or controversy. Most responsible accounts of the Crash of 2008 emphasize the role of deregulation, incentives, and the free-market faith in the building of the bubble. I repeat all these well-known tales here for this reason: according to the logic of hard times—according to logic tout court—the Crash of ’08 should have kick-started the hard-times scenario in the same way the events of 1929–32 did.

  And for a while it seemed as though matters were moving inexorably down those Depression-era tracks. The financial heroes of previous years became objects of public wrath almost immediately. We turned on the politicians who bailed out their friends. Our fury spiked every time we heard some dispatch on the bankers’ still-posh lives.

  In October of 2008, we learned about the lavish corporate retreats enjoyed by executives at financial firms even after they were bailed out. In November, there was a wave of anger at auto executives who flew to DC in private jets to ask for their own lifeline. In January of 2009, news broke that the CEO of Merrill Lynch had approved extravagant bonuses even as the company headed for disaster; he had also spent over $1 million redecorating his office. In March, it was the turn of the CNBC business news network, as the comedian Jon Stewart reminded the world of the channel’s smiling sycophancy toward CEOs and its clueless optimism regarding all things Dow.

  In politics, the Crash of ’08 ended the prospects of that year’s Republican candidate for president, Arizona senator John McCain, who had the bad fortune to be the standard-bearer of the party that had ruled for most of the preceding seven years. With the stock market plummeting in the background, a jittery nation chose as its president the Democrat Barack Obama, a first-term Illinois senator whose chances, in the usual scheme of American political things, would have been virtually nil: not only was he a professorial, big-city northerner, but he was black.

  At the time, Obama appeared to be the ideal figure for the moment. Alone among the candidates competing for the presidency in 2008, he seemed to have some grasp of what caused the financial crisis. In a famous speech in March of 2008, he had actually offered a spirited defense of the regulatory state, something few politicians of our time dare to do. As the financial crisis unfolded, comparisons of him to Franklin Roosevelt became common; a Time magazine cover, for example, morphed his face onto a famous photo of FDR.

  With the presidency in their hands, the Democrats proceeded to take certain distinctly thirties-style actions, like implementing measures to encourage mortgage modifications and establishing a commission to investigate the financial crisis. The brand-new president persuaded Congress to approve a $787 billion stimulus package early in 2009 and to partially reregulate Wall Street. He even managed to push through a universal health-insurance bill. It looked at times as though Roosevelt really was riding again.

  From grandees of the old order, meanwhile, came the same cries of recantation that one heard in 1932. The most remarkable disavowal was that of Alan Greenspan, a member of the aforementioned “Committee to Save the World.” As Fed chairman, Greenspan had fought fiercely to keep derivatives markets unregulated and took a comfy snooze when called upon to supervise the nation’s intoxicated mortgage lenders. But now Greenspan confessed to feeling “shocked disbelief” at all that had gone on. Testifying to a House committee in October 2008, he said, “I made a mistake in presuming that the self-interest of organizations, specifically banks and others, [was] such that they were best capable of protecting their own shareholders and their equity in the firms.” “You found that your view of the world, your ideology was not right,” the committee chairman coaxed him. “Precisely,” answered the maestro.

  There was a brief vogue for stories about troubled economists brooding in the limestone halls of the University of Chicago. Among that institution’s celebrated champions of efficient market theory, the Nobel laureate Robert Lucas was reported in 2008 to be doubting his former belief in bank deregulation.4 The Nobel laureate Gary Becker confessed in 2009, “There are a lot of things that people got wrong, and I got wrong, and Chicago got wrong.”5 But the most astonishing conversion was that of Richard Posner, another knight-errant of the Chicago school. His 2009 book, A Failure of Capitalism, placed the blame for the cataclysm squarely on his former comrades in the deregulation movement. The collapse “hit economic libertarians in their solar plexus,” he wrote, because it had discredited their free-market philosophy so utterly, so undeniably.6 In 2010, Posner called for the revival of thirties-era banking rules and penned the unthinkable: an homage to John Maynard Keynes, the genius of deficit spending and the bête noire of the free-market crowd.

  Just as readers of the thirties snapped up books trashing the great capitalists and picking apart classical economics, so did the book-buying public of our own time seem ready to read about the folly of orthodoxy. In 2009, a Time magazine columnist named Justin Fox scored an unlikely hit with The Myth of the Rational Market, a careful takedown of academic economics. Michael Lewis, who had once made heroes of tycoons, now walked readers through the descending levels of the Wall Street ripoff in The Big Short. And there was a sudden mania for Great Depression comparisons: Paul Krugman reissued his 1999 work, The Return of Depression Economics—this time they had truly returned—and a book about the blundering central bankers of the twenties actually made the bestseller list.

  Waiting for Lefty

  For those on the receiving end of this rising discontent, the unfolding of the hard-times scenario seemed just as certain, as unavoidable. The Jacobin jitters gripped them suddenly and would not let go.

  One who sounded an early alarm was Charles Koch, the oil baron and influential funder of libertarian organizations; in his company’s newsletter, he groaned that we were reliving the disasters of the Depression and were on the verge of making the “same mistakes” as our ancestors—by which he meant installing new regulations, public works programs, new government agencies. As a result, he wrote, we were “facing the greatest loss of liberty and prosperity since the 1930s.”7

  “Capitalism is under siege, its future unclear,” moaned the economics columnist Robert Samuelson a short while later. On CNBC, the various personalities could be heard chatting anxiously about the uptick in “class war,” by which they meant public contempt for investment bankers.8 Those investment bankers, meanwhile, were reportedly buying ranches in western states in preparation for the economic helter-skelter.9 Forbes magazine fairly trembled with ancien régime anxiety. Its May 11, 2009, edition featured a wealthy cartoon family walking through a nightmare landscape, haunted by a ghoulish Uncle Sam preparing to raise their taxes and menaced by a crowd of protesters holding a placard marked “Kill the Rich!” A teaser for the story warned that “Uncle Sam wants your money, and the crowd outside the gate wants your head.”

  The escalating class-war danger was taken up by Newsweek in a screaming cover issued in February of 2009: “We Are All Socialists Now.” The nation was only three weeks into the new Obama administration, but the socialist nightmare that had haunted William Randolph Hearst in the darkest days of the New Deal had already come to pass.* We had no Socialist Party to speak of, but here was a leading journal announcing that it had happened to us just the same.

  The Newsweek cover vindicated the scariest of hard-times fears. Over the years since its publication, I have seen it waved in the air at conservative rallies; summoned up as damning evidence in popular right-wing books; and held aloft like a trump card for the TV cameras by the Republican leader Ken Blackwell. And a few weeks into his new show on Fox News, a former radio DJ named Glenn Beck displayed the Newsweek cover before his own cameras as proof that “the rich are being demonized” just as they were in the thirties.

  The anxieties of the business class were not without reason. The point of maximum public fury came in March of 2009, when managers of the bailed-out financial supermarket AIG handed out $165 million in bonuses to the division that i
nvented the derivatives that brought the company down. Bonuses! The nation was already in flames over the bailouts by then, of course. But now this comatose, money-hole of a corporation—AIG was being kept alive only so its bad bets could be unwound in an orderly way—showed us that the bonus-grabbing culture of the trader would not die.

  It was an inconceivable ripoff. The people who had nearly succeeded in shoving the world off a cliff were now going to walk away rich. Wall Street pay, we suddenly understood, had never been a reward for “performance” or a grateful recognition of what financial innovation did for the nation—it was strictly about what Wall Streeters could get away with. The AIG bonus scandal thus became a symbol for the larger scandal of the crisis/bailout, another one of those moments that shreds people’s faith.

  The public’s disgust was volcanic this time; it seemed to erupt more violently with each passing day. A Bloomberg story that appeared on March 18 observed that “Americans want to see heads roll. They are calling National Public Radio to accuse AIG of ‘legalized robbery without a gun.’ They are telling CNN to put photographs of AIG executives on the air and ‘expose them like America’s Most Wanted.’”

  The firestorm quickly overtook mainstream, business-friendly Democrats. Connecticut senator Chris Dodd had been a loyal friend of AIG, it was now angrily remembered. President Obama himself had received campaign contributions from the company’s executives. Larry Summers, formerly of the “Committee to Save the World” and now director of the National Economic Council, thought the way to respond was to lecture Americans on the rule of law and the sanctity of contract. And with every snooty dismissal, matters only got worse.

  Now Newsweek published a “thinking man’s guide to populist rage,” depicting the reaction to the AIG bonuses as a replay of the sentiments of the Depression. The wise men warned President Obama that he had to keep a lid on this populist thing; the country was being swept up in a whirlwind of class antagonism, as in the thirties, and matters could easily get out of control.10 Obama himself then extended the warning to Wall Street. When he met with a delegation of Wall Street bankers in April of 2009, the new president told them, “My administration is the only thing between you and the pitchforks.”

  The World Turned Right Side Up

  Those pitchforks showed up, all right. But Wall Street had nothing to fear from them. Almost none of the elements of the hard-times scenario outlasted the early months of the slump. There was no surge in formal worker militance, although there was soon a determined effort by state governments to kill off organized labor. There was no wave of defiance by the foreclosed-upon, but instead a successful campaign to destroy ACORN, the fair-housing advocate. It would be two more years before Occupy Wall Street would materialize.

  By that time, Wall Street compensation was back where it belonged. In April 2011, New York magazine carried on its cover a photo of a satisfied young investment banker with a wad of C-notes gripped in his taunting hand. “Wall Street Won,” sneered the caption. If it had been briefly unfashionable to rub the world’s face in one’s plundrous glory, now the hairshirt days were over. The louts were swinging wide once again.

  But the populist fury of 2009 lived on in a thousand Tea Party gatherings in parks and convention centers all across the nation. In April of 2009, there were Tea Party events in nearly every city of any size in the land. All through that summer, protesters attended town hall meetings to make things hot for our elected representatives. In Washington that autumn, they paraded by the hundreds of thousands down the National Mall; the following spring, they filled the west lawn of the Capitol; and in August 2010, they showed up at the Lincoln Memorial to lay claim to the memory of Martin Luther King Jr.

  And through it all the protesters’ sense of the injuries suffered by average Americans stayed fresh; their anger at the elites did not dim. They cursed the high and the mighty using the unmistakable terms of the democratic tradition: quoting Jefferson, quoting Franklin, quoting Tom Paine. The zeal of some was so great that they waved “Don’t Tread on Me” rattlesnake flags and wore powdered wigs.

  Theirs was a different populism than the one we started with, however. In the early months of 2009, it was mass public outrage against bankers that threatened to pull Americans out of their chairs and into the streets. By the time a year had elapsed, however, the bonus boys’ misbehavior had been pretty much forgotten. In no time at all, the public’s rage had migrated from Wall Street to Washington. Before long the only populism available in the land was an uprising against government and taxes and federal directives—in other words, it was now a movement in favor of the very conditions that had allowed Wall Street to loot the world. In fact, nearly every aspect of the culture responsible for the collapse—from deregulation to Ayn Rand’s novels—quickly became the subject of roaring enthusiasm. Old man Greenspan may finally have found a “flaw” in his system, but outside the hearing-room windows of the nation the people themselves were swearing that their faith would never die.

  For the antigovernment Republican Party, the shift brought an amazing revival. What seemed to be a suicidal maneuver by GOP leaders turned out to be just the thing for the time and the place. In January of 2010, voters in liberal Massachusetts enthusiastically filled the Senate seat of the recently deceased Ted Kennedy with a little-known Republican named Scott Brown. A core Democratic group—blue-collar workers—showed the most remarkable swing of all. Among this demographic, the results were so lopsided that the AFL-CIO’s national political-action director called the Massachusetts election a “working class revolt.”11

  And on it rolled. A month after the Massachusetts upset, a Washington Post headline observed that “Appalachia Is Slipping from Grip of Democrats”; the story that followed described a down-and-out coal-mining area in western Virginia where the forgotten man’s response to the slump was a headlong flight into the arms of the GOP.12

  The general election that November was a full-blown Republican triumph. The House of Representatives saw its biggest midterm swing since 1938, with an amazing sixty-three seats changing from blue to red.* It had been only two years since the Democrats’ own great victory, but now the populist fury was all on the other side.

  The story was the same just about everywhere. National Journal went through the exit polls in January 2011 and discovered that blue-collar whites chose Republican congressional candidates by an amazing margin of two to one nationwide. In a demonstration of “profound resistance to Obama and his agenda,” the demographic that had been moved by capitalism’s last systemic crisis to hand the presidency to Franklin Roosevelt four times in a row now resurrected the politics of Herbert Hoover.13

  It was an astonishing reversal, to be sure, but it was hardly the guileless upsurge that its fans have made it out to be. Most of the people involved were well-meaning citizens caught up in the spirit of the times. But the larger political operation in which they enlisted themselves has been like a gigantic game of three-card monte, in which the deck is shuffled and one card takes the place of another. Before our eyes, imaginary terrors have been substituted for real ones. All that remains is for the nation to pay up.

  CHAPTER 3

  Hold the Note and Change the Key

  Maybe a more appropriate metaphor for the conservative revival is the classic switcheroo, with one fear replacing another, theoretical emergencies substituting for authentic ones, and a new villain shuffling onstage to absorb the brickbats meant for another. The conservative renaissance rewrites history according to the political demands of the moment, generates thick smokescreens of deliberate bewilderment, grabs for itself the nobility of the common toiler, and projects onto its rivals the arrogance of the aristocrat. Nor is this constant redirection of public ire a characteristic the movement developed as it went along; it was present at the creation. Indeed, redirection was the creation.

  Drawer of Water, Hewer of Bullshit

  The call that awakened the rebellion came not from some itinerant IWW organizer but from a TV “ran
t” delivered on February 19, 2009, by one Rick Santelli, a business reporter standing on the floor of the Chicago Board of Trade—a reporter ranting, let us be clear, not against the traders who surrounded him but on their behalf. In retrospect, there would be few better examples of the spirit of inversion that drives the conservative revival.

  Rick Santelli had criticized many aspects of the bank bailouts over the preceding months, but on that day in February when he had the ear of the nation, the part of the TARP that drew his disgust was, significantly, the element designed to help homeowners modify the terms of certain underwater mortgages, making payments more affordable and thus preventing foreclosures. It was the only part of the TARP that was intended to directly benefit individual borrowers rather than institutional players, and thus it was supposed to help make the program popular. Instead, it brought down the wrath of this man Santelli, who found it inconceivable that such an initiative was even under consideration. “This is America!” he yelled, working himself into a rage.

  And in Santelli’s trading-floor “America,” such a program was “promoting bad behavior,” “subsidiz[ing] the losers’ mortgages” with public money that, were it directed to society’s winners, would presumably be spent on better, shinier things. Santelli’s outrage at these “losers” was inexhaustible, incandescent. They “drink the water” while others “carry the water.” Raising his arms and turning to his friends, the Chicago traders, he asked, “How many people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”*

  Boo, went the traders: Down with neighbors! To hell with their extra bathrooms, their arrogant water-drinking, their hard luck.