The Shock of the Great Recession

When the Great Recession began to embed itself in the fabric of our economy, conservative values that had guided economic policymaking were turned on their head. Deregulation, or the lack of government involvement in the market, was no longer possible without what Jonathan Levy refers to as a economic Armageddon in his book Ages of American Capitalism. When Lehman failed, the Federal Reserve hesitated to use their authority to save the bank from bankruptcy. Not because they were afraid to act unconventionally under Section 13(3), but because the Fed, namely Ben Bernanke, did not see a possibility in saving Lehman with or without government assistance. When it came to AIG, however, Bernanke is quoted saying, “The failure of AIG would have been basically the end” (Levy). Through coming to AIG’s aid and keeping them afloat, the Fed became what Levy calls a lender and a dealer. More banks, at home and abroad, began to rely on the Fed to avoid an immediate and catastrophic crash. In this way, regulation was inevitable. Further, the conservative economy no longer promised to be a “fair allocator of resources.” Instead, the recovery from another Great Depression resulted in a the rich getting richer while the average American struggled to pay their mortgage. The Fed and US Treasury, although unelected, demonstrated their broad power and influence by acting under existing and new legislation that granted them control. However, Levy mentions that the legal authority in which these bodies claimed to act under did not perhaps grant them the authority they claimed to have. Emergency legislation during the Great Recession also granted immense power to these same unelected bodies. One example is the Treasury’s proposed Troubled Asset Relief Program (TARP) which “requested blanket authority for Treasury to buy up to $700 billion in toxic assets” (Levy). 

Barack Obama was not as much of a deviation from the Bush economy as he wanted to be. Obama was not an advocate for debt and instead campaigned on a sense of responsibility that each person had. He also wanted to stop the disproportionate flow of benefits to the rich, a consequence of the shock of 20017-2008. But to actually steer the ship away from a potential depression required a creative fix. Of that, Levy argues that “what was needed was for democratic politics and the state to chart a new direction, a new, viable long-term economic path, by changing the logic of investment…[but] that did not happen” (Levy). The Obama administration instead maintained a model focused on appreciation. Levy writes that this is not fully Obama’s fault, however, because he was offered only pathetically unimaginative solutions, whereas FDR was given new and promising ideas during the Great Depression of the 1930s. It seems that the Great Recession as a whole and its consequences were the failure of economists’ and politicians’ ability to foresee the consequences of speculation rather than long-term investments. The Great Recession was predictable, Levy writes, yet it blindsided our nation and the global economy for the worse.