Outcry over financial industry bailout ‘shocked’ officials: ex-Treasury chief
BY SANDRA GUY AND NATASHA KORECKI Staff Reporters October 29, 2013 8:20PM
Former U.S. Sen. Chris Dodd (left), Randall Kroszner, David Nason, Mary Schapiro and moderator Joe Nocera of the New York Times attend the financial criss forum. | Sandra Guy~Sun-Times
Updated: December 2, 2013 11:27AM
Former U.S. Treasury Secretary Henry Paulson said Tuesday he and other key officials were “shocked” by the public backlash following the government bailout of the financial industry.
Paulson made the remarks Tuesday in Chicago at a symposium that looked at the crisis five years after the United States plunged into its worst economic crisis since the Great Depression.
“I had a good number of politicians say to me and a good number of members of the press say to me that the one thing we all underestimated — everybody knew it was going to be a very unpopular vote — no one knew the extent of how unpopular it was,” Paulson said. “I would say that I thought both Democrats and Republicans were shocked over how angry the American people were, and the financial press were, too.”
David Axelrod, former senior advisor to President Barack Obama and a long-time political strategist, said today’s political climate in Washington can be traced back to the 2008 financial collapse.
“Some of the steps that we had to take to right the economy did help fuel the Tea Party rebellion,” he said. “Now it’s a become a major, major motif for the Republican Party.”
Paulson and Axelrod were among 18 heavyweights who spoke during six panel discussions about their experiences in the thick of the financial crisis, whether as regulators, legislators, economists or advisors. Chicago Mayor Rahm Emanuel — who served as Obama’s chief of staff — also took part.
Emanuel was credited with the phrase: “Never let a good crisis go to waste.”
He expounded on that.
“It’s an opportunity to do things you otherwise would not have done. Bailing out the auto industry at that time was as unpopular as bailing out,” the banks. But it fueled recovery, he argued.
Several students at the University of Chicago and its Booth School of Business got to show off their financial savvy by asking questions of the panelists.
Speakers painted the still-dour picture at a symposium Tuesday looking back at the economic crisis, saying looming implosions remain in underfunded pensions, rickety financial-markets technology, people’s lack of retirement savings and students’ too-high college-loan debt.
“The economy has a long way to go,” Axelrod said. He cited a Pew poll showing 71 percent saying government has done nothing to help the middle class and, by a four-to-one margin, believing Wall Street got off easy after the federal government bailed out the very banks that tried to profit from risky mortgage deals.
“Lives were destroyed; savings were destroyed,” Axelrod said.
The symposium, held at the Spertus Institute, 610 S. Michigan, was sponsored by the University of Chicago Institute of Politics — which Axelrod heads — and the Paulson Institute, a Chicago-based think tank that promotes economic growth. The former Treasury secretary serves as chairman.
Panel members warned “ticking time bombs” loom.
Charles Schwab, chairman and a founder of his eponymous investment firm, said few people realize that most Fannie Mae-Freddie Mac mortgages come with variable rates, with possible big losses ahead when interest rates rise.
The federal government took control of Fannie-Freddie amid the financial crisis, and the two companies now back more than 95 percent of all home loans made in the United States.
Ruth Porat, chief financial officer at Morgan Stanley, said college students’ loan debt is her definition of a ticking time bomb.
“Are students getting the kind of loans that work with their degree?” she said. “Is it worth what they are spending [to go to school]?
The federal student loan debt totals $1.2 trillion, the Consumer Financial Protection Bureau estimates.
The scariest scenario for Larry Fink, CEO of investment firm BlackRock, is a lack of retirement savings and pensions. He said he tells parents the looming crisis will mean they will have to live with their children in their golden years.
Fink has previously called for mandatory retirement savings accounts, given that half of Americans polled have less than $10,000 in savings, and only one in five working people will get pension income when they retire.
In a separate panel discussion, Mary Schapiro, former chairman of the U.S. Securities and Exchange Commission, said a federal agency designed to protect consumers against financial shenanigans is now furloughing its workers and has “no capacity” to do its job.
The agency, the Commodity Futures Trading Commission (CFTC), oversees swaps, options and derivatives trading. It is furloughing its employees for 14 days for the fiscal year that started Oct. 1 because it doesn’t have enough money to pay them. The furloughs coincide with the CFTC’s new mandate to oversee the over-the-counter derivatives market.
Most of the panelists said they believe the reforms worked, and that the government must continue to be active in simulating the economy. They disagreed on the degree to which the government should keep pumping the stimulus.
The next challenge, Axelrod said, is to stimulate middle-class growth and stabilization in a world where heightened productivity and technological innovations challenge that goal.
“The real challenge is how do you create growth that is expansive, in which you have a growing rather than a shrinking middle class, and where people think they can get ahead,” he said in an interview with the Sun-Times. “We need to think about our strategy to create well paying jobs in the new economy.”