closing at 9,387.
October 15, 2008
The Dow plunged 733 points, closing at 8,577.
October 28, 2008
The Dow gained 889 points, the second best point gain in history, closing at 9,065.
November 4, 2008
Barack Obama was elected president of the United States with the campaign slogan, “Change We Can Believe In.” He will take over a government that has by now committed $7.8 trillion in various forms to salvage the economy.
December 2008
It was reported that Americans lost 584,000 jobs in November, the biggest posted loss since December 1974. Unemployment was reported at a 15-year high of 6.7 percent, with nearly two million jobs lost in the United States alone in 2008. Additionally, it was reported that China, the world’s fastest growing economy, lost 6.7 million jobs in 2008, an indication that the global economy was in severe distress and on the verge of meltdown.
Economists finally admitted the U.S. economy had been in a recession since December 2007. One year later, the economists finally figured it out?
Warren Buffett, who many consider the world’s smartest investor, saw his company, Berkshire Hathaway, lose 33 percent of its stock value in a year. Investors took solace in the fact that the fund outperformed the market—by losing less than the average. That’s comforting.
Yale and Harvard universities announced their endowment funds lost over 20 percent in a year.
GM and Chrysler received $17.4 billion in government loans.
President-elect Obama announced an $800 billion stimulus plan centered on massive infrastructure projects aimed at easing the record U.S. job losses—this was in addition to the $7.8 trillion already committed by the U.S. government.
December 31, 2008
The Dow closed at 8,776, down 5,388 points from its record high achieved just over a year earlier. It was the worst yearly performance for the Dow since 1931 and equated to $6.9 trillion in lost value.
Back to the Future
Faced with such an overwhelmingly bad economy, President Bush pushed through a landmark bailout plan aimed at saving the economy, saying, “This legislation will safeguard and stabilize America’s financial system and put in place permanent reforms so these problems will never happen again.”
Many people breathed a sigh of relief, thinking, “Finally, the government is going to save us!” The problem is those are not the words of President George W. Bush. Those are the words of his father, George H. W. Bush. In 1989, the first President Bush asked for $66 billion to save the savings and loan (S&L) industry. The $66 billion did not solve the problem; the S&L industry disappeared from sight. On top of that, the estimated $66 billion rescue package eventually cost taxpayers over $150 billion—more than twice the amount originally estimated. Where did all that money go?
Like Father, Like Son
Twenty years later, in September 2008, President George W. Bush asked for $700 billion and made a similar promise: “We’ll make sure, as time goes on, this doesn’t happen again. In the meantime, we got to solve the problem. And that’s why people sent me to Washington, D.C.” Why is it that a father and son said almost the same thing about saving the economy almost 20 years apart? Why was the first President Bush’s promise to fix the system broken?
All the President’s Men
The main campaign slogan of President Barack Obama’s campaign was, “Change We Can Believe In.” Given that slogan, we must ask a question: Why did President Obama hire many of the same people who worked in the Clinton administration? That doesn’t seem like change. It seems like status quo.
During the election, why did Obama consult Robert Rubin, who just recently resigned as head of Citigroup, a company on the verge of its own collapse and that has received some $45 billion in bailout funds, for advice on the economy? Why did he appoint Larry Summers to be director of the White House National Economic Council and Timothy Geithner, former head of the Federal Reserve Bank of New York, to be his secretary of the treasury? All of these men were members of the Clinton economic team and played a part in the repeal of the Glass-Steagall Act of 1933, an act that forbade banks from selling investments. Banks selling investments in the form of derivatives is a big reason why we are in this mess today.
In overly simple terms, the purpose of the Glass-Steagall Act of 1933, crafted during the last depression, was to separate savings banks, which had access to Federal Reserve funds, from investment banks, which did not. Clinton, Rubin, Summers, and Geithner succeeded in repealing Glass-Steagall in order to legitimize the formation of Citigroup, the biggest “financial supermarket” in U.S. history. Many people do not know this, but at the time of its formation, Citigroup was in violation of the Glass-Steagall Act.
The following is a comment by Kenneth Guenther, CEO of Independent Community Bankers of America (the small bankers of America), made to PBS in 2003 about the formation of Citigroup:
Who do they think they are? Other people, firms, cannot act like this… Citicorp and Travelers were so big that they were able to pull this off. They were able to pull off the largest financial conglomeration—the largest financial coming together of banking, insurance, and securities—when legislation was still on the books saying this was illegal. And they pulled this off with the blessings of the president of the United States, President Clinton; the chairman of the Federal Reserve system, Alan Greenspan; and the secretary of the treasury, Robert Rubin. And then, when it’s all over, what happens? The secretary of the treasury becomes the vice chairman of the emerging Citigroup.
The most telling line is the last one: “The secretary of the treasury [Robert Rubin] becomes the vice chairman of the emerging Citigroup.” As we’ve discussed, Robert Rubin was Obama’s advisor during the presidential campaign.
President Obama’s current secretary of the treasury is Timothy Geithner. He was undersecretary of the treasury from 1998 to 2001 under Treasury Secretaries Robert Rubin and Lawrence Summers. Summers is Geithner’s mentor, and many call Geithner a Robert Rubin protégé. Oh, what a tangled web we weave.
In other words, these same men are partially responsible for triggering this financial crisis. By allowing the combining of savings banks with investment banks, these guys accelerated the sale of the exotic financial derivatives that Warren Buffett called “weapons of mass financial destruction” and that have helped bring the entire global economy to its knees. How can there be change if the same people who expanded this financial mess remain in charge? What does President Obama mean when he promises change we can believe in?
Republicans, Democrats, and Bankers
One reason why Presidents Bush, Sr., and Bush, Jr., said almost the same words, that a bailout would save the economy and never happen again, is because they were elected to protect the system—not fix it. Could one reason that President Obama hired virtually the same financial team from the Clinton administration be because he was interested in protecting the same system—a system designed to make the rich get even richer? Only time will tell. Although President Obama was proud of the fact that he did not accept campaign money from lobbyists, the truth remains that his financial team is full of insiders who
