The Bailout

The 2008 global financial crisis was not a natural disaster. It was the predictable consequence of a financial industry that had spent two decades lobbying for deregulation, then used that deregulation to construct a pyramid of mortgage-backed securities, collateralized debt obligations, and credit default swaps that transferred systemic risk from the banks that created it to the broader financial system — and ultimately to taxpayers.

When the pyramid collapsed in 2008, approximately $11 trillion in household wealth was destroyed — primarily through home value losses and retirement account crashes. More than 8.7 million jobs were lost between 2008 and 2010. Approximately 10 million households lost their homes to foreclosure between 2006 and 2014.

The institutions that caused this destruction did not bear the losses. The households that owned homes, had retirement accounts, and worked jobs bore the losses. The institutions that created the crisis received the largest government intervention in financial history.

The Troubled Asset Relief Program (TARP) authorized $700 billion in financial institution assistance. By the time it wound down, the Treasury had disbursed approximately $426 billion and recovered $441 billion — a nominal profit. But TARP was the smallest part of the government's intervention. The Federal Reserve's emergency programs committed trillions more.

A 2011 Bloomberg investigation found that the Fed's emergency lending programs had committed up to $7.77 trillion in financial institution support at their peak — including loans at below-market rates that generated significant profit for borrowing banks. The Fed's programs were largely secret until Bloomberg successfully sued for the records.

The beneficiaries: Citigroup ($476B in Fed support), Bank of America ($336B), Morgan Stanley ($107B), Goldman Sachs ($814B across all programs), JPMorgan Chase, Wells Fargo, and others. These institutions were simultaneously lobbying to limit oversight of the relief they were receiving. Several paid billions in executive bonuses in 2009 while receiving government assistance.

The Department of Justice prosecuted 35 Wall Street executives after the Savings and Loan crisis of the 1980s — a financial crisis one-seventieth the size of 2008. After the 2008 crisis — the largest financial system collapse since the Great Depression — the DOJ brought criminal charges against zero senior executives at major financial institutions.

Banks paid billions in civil settlements: JPMorgan Chase ($13B), Bank of America ($16.6B), Citigroup ($7B), Goldman Sachs ($5B). In each case, no executives admitted wrongdoing, no executives went to prison, and the settlements were paid by the corporations — effectively by shareholders and, in some cases, by future customers through fees — not by the individuals who made the decisions.

The Obama DOJ's explanation, conveyed by Attorney General Eric Holder, was that some institutions were "too big to jail" — that prosecuting senior executives risked destabilizing the institutions and harming the broader economy. This is the doctrine of institutional impunity: crime is legal when the criminal is large enough.

Stock markets recovered quickly. The S&P 500, which bottomed in March 2009, had returned to its pre-crisis peak by 2013 and went on to achieve record highs. Corporate profits recovered to pre-crisis levels by 2011. CEO pay at S&P 500 companies reached record levels by 2014.

The working class recovered much more slowly, or not at all. According to the Federal Reserve's Survey of Consumer Finances and Census Bureau data, median household income did not recover to its 2007 level in real terms until approximately 2019 — twelve years after the crisis. The homeownership rate, which peaked at 69% in 2004, fell to 63% by 2016 and has not recovered. Approximately 10 million households lost their homes.

This asymmetry is the fundamental fact about the 2008 crisis and its aftermath: the government rescued the institutions that caused it, prosecuted none of the individuals responsible, and implemented austerity policies that slowed the recovery for working people while financial markets boomed. The Federal Reserve's quantitative easing programs inflated asset prices — disproportionately benefiting those who already held assets.

While the federal government focused its crisis intervention on financial institutions, the millions of households who lost their homes received comparatively minimal assistance. The Home Affordable Modification Program (HAMP), designed to help at-risk homeowners stay in their homes, was widely documented as a failure: servicers modified fewer than 500,000 permanent modifications against a goal of 3–4 million.

Into this vacuum stepped private equity. Blackstone's Invitation Homes spent $10 billion purchasing approximately 80,000 foreclosed homes beginning in 2011 — converting ownership back into rentals. The families who had lost those homes now paid rent to private equity for the privilege of living in them.

This is the complete picture of the 2008 crisis and its aftermath: banks caused the crisis and were bailed out with public money; executives were not charged; working people lost their homes and waited twelve years to recover their incomes; and private equity purchased the foreclosures and charged them rent. The redistribution was systematic, structural, and bipartisan.