New Horror Site: Zillow in 2008

Historian Jonathan Levy writes, “what most distinguishes the Age of Chaos is a shift in what has always been capitalism’s core dynamic: the logic of investment, as it works through production, exchange, and consumption” (Levy). After the Volcker Shock (named after the chairman of the Federal Reserve in late 1970s and early ‘80s), the United States became a net importer of global capital and the “consumer market of last resort for the world’s manufacturing export-led economies” (Levy). Income growth thus shifts from labor to the owners of appreciating assets; as a result, income inequality increases. The “magic of the market”—the belief that there would always be liquidity in the form of a willing buyer for any asset—went up in smoke during the 2008 Great Recession. Driven in part by credit-lending to homeowners and the ultimate decline in housing prices, the Great Recession was the “greatest financial collapse in the history of capitalism.”

When Barack Obama won the presidency in 2008, he inherited this Great Recession. Rather than turning into a Great Depression, the Obama administration used administrative state power to successfully bring transactional liquidity back into the global capital markets and thus ended the panic (Levy). While Obama’s administration departed from the conservative consensus idea as significant state intervention was used, it was still a continuation of the belief in free-market capitalism. Levy writes, “Only the federal government had the capacity to shift beliefs and restore liquidity—if the political goal was only to repair the dollar based global financial system, not transform its structure fundamentally, which it was” (Levy). Thus, new government programs are implemented, such as the Troubled Asset Relief Program (TARP), which injected capital into private banks that were too important to the economy to go bankrupt. Though the government could have reevaluated the relationship between the financial system and the economy, business went on as usual. No criminal prosecutions were initiated against Wall Street firms or banks, much less high-level executives. 

Levy mentions how the the Federal Reserve plays a global role in the world’s reserve currency. The Fed sets interest rates or provides dollar swap lines, so they play a crucial role in the global economy. Similar to how the President receives expansive power during war-time, the Fed and U.S. Treasury also are independent bodies designed to act quickly in times of need, especially with a recession and a looming depression. Both institutions are divorced from the political process; this ensures the individuals running the agencies do not deal with electoral pressures. This also means that they have expansive authority over economic policy-making decisions.