“How the Clock Broke”
My Paper for the Trump Mini-Conference at Cambridge
Attached below is the paper I wrote for “The Past, Present, and Future of the Trump Era: A Mini-Conference.” It is basically a more formalized and academic development of one strand of argument in When the Clock Broke, namely that the Savings & Loan crisis and the recession of the early 1990s demonstrated a lot of the same mechanisms that were visible in a much more stark and drastic way in 2008, and eventually, 2016.
I’d like to thank my commentator David Edgerton of King’s College London for his insightful remarks and Caroline Johnston of Cambridge University for running the terrific discussion. And thank you to all the attendees for your helpful questions and comments. A very special thanks again to Gary Gerstle for the invitation to Cambridge — it was really a wonderful and stimulating event — and we’re all very much looking forward to his next book.
Here’s a sample that summarizes the argument in my paper:
This “first neoliberal crisis,” as one might call it, demonstrated in nuce similar mechanisms we would come to see in the social and political crises that beset the United States in the early twenty-first century: namely, the Great Recession, right-wing populism, and the destabilizing and authoritarian presidencies of Donald J. Trump. First, a speculative bubble caused by deregulation of the financial markets bursts; then, the crisis spreads to the real economy; and finally, there is a political reaction. Rather than manifesting as class struggle per se, these politics took on a populist and plebiscitary form: rage at the perceived and real intermeshing of political and economic elites, as well as the related attack on representatives and even representational government itself as hopelessly corrupt and beholden to “special interests.” The public turned towards expressions of strongman rule that purported to short-circuit the interplay of interest group politics and slow-moving bureaucracy. A former federal financial regulator and the author of a retrospective book on the Savings & Loan collapse presciently wrote, “History repeats, said Karl Marx, discussing the rise of Louis Napoléon; the first time it’s tragedy, and the second time it’s farce. For all the damage done, this tale had a heavy leavening of farce from the beginning. Repetition — and it could happen — would be tragedy.”
If I were to rewrite it today I’d mention in more detail some things I missed or passed over too quickly:—
There’s a complex story about race here that I did not address. I mention that the House reforms of the 1970s that ultimately assisted in deregulation being passed bypassed the Southern populist Democrat committee chairs who once had so much power, but I did not go into the relationship between the Thrift industry and redlining. Many of the congressmen who were defended the Savings & Loan as a bulwark of community-centered finance against predatory big banks were also ardent segregationists. In addition, when the bailouts came in the early 1990s, there was notably different treatment in institutions that served black communities and white. For instance, while hundreds of banks failed in the early 90s, for some reason, Freedom National Bank of Harlem was treated relatively harshly: it’s depositors were given up to the $100,000 FDIC cap, but this was unusual as federal regulators helped customers at other banks transfer their accounts to new banks so they wouldn’t lose anthing.
There’s an even closer connection between the mechanism of the S&L crisis and the subprime mortgage crisis than I let on. Lewis Ranieri of Salomon Brothers devised the system of packaging mortgages into bonds specifically as a product to sell to ailing Thrifts. This practice he labeled “securitization” and these were the one-day-to-be infamous Collateralized Mortgage Obligations (CMOs.) There was another round of deregulation in the mid 1980s that facilitated this, which overturned the rule against private banks selling mortgage-backed securities without government oversight.
I wish I had made stronger connections between finance and the productive economy: the deregulation was partly to deal with the shortage in housing starts that the financial issues of thrifts were causing in the late 70s and early 80s and, ultimately, it resulted to a crisis of overproduction—a glut—in commercial real estate. I think you can tell a pretty orthodox Marxian story about capitalist crises there.
