In the hope that we can do better...
The Bullies of Wall Street by Sheila Bair
This book is very different from other books written about the financial crisis of 2007-08. It may even be unique. Firstly, it is written with a younger readership in mind. It is written with the hope that if they better understand what happened, then a similar crisis could be avoided, and a brighter and better future will be assured. It is written by someone who was at the very heart of what happened in those turbulent months, someone who headed up an agency responsible for protecting ordinary people.
Sheila Bar was head of FDIC, the American Federal Deposit Insurance Corporation, between 2006 and 2011. She writes about this period of her life in great detail in “Bull by the Horns: fighting to save Main Street from Wall Street and Wall Street from itself.” (2012) That book tells how she was present at high level conferences as the crisis developed, but, unlike most of the men involved, she actually met the families who were trying to hold onto their homes, venturing into the foreclosure-plagued, low income neighbourhoods.
Her experience led her to be critical of those figures who dominated the news throughout the crisis, people such as Tim Geithner. (“I don’t think helping home owners was ever a priority for them.” He ... “viewed the big banks as the center of our economy and equated them with helping the broader economy.”) Meeting ordinary people caught up in these events meant that she had the opportunity to offer President Obama a front line view and to talk about the problems of families and small businesses. She observes, “My heart still breaks looking back at that time period, when we had our new president with a strong commitment to helping families and a willingness to spend real money to protect them. Unfortunately, in my view, his advisers did not share his priorities. They cared more about the big banks.”
And her experience enabled her to write this book, which begins with some sensitive and perceptive sketches of people’s lives, as their circumstances change dramatically as a result of the crisis which engulfed major world economies. The characters are fictional, but typical of those whose lives and life chances were devastated. “The people who were hurt the most were those who were the least guilty of doing anything wrong.” We are introduced to people whose homes are being foreclosed, who lose their jobs and who are faced with high medical bills, as well as to rapacious mortgage originators and servicers and those who sought to make money out of securitisation of loans. This section of the book includes careful and straightforward explanations of exactly what was happening in the financial world and its effects on ordinary people.
Whilst the characters are people who have generally tried to do the right thing, they are not without blame. Ordinary home owners did purchase houses speculatively with the hope of making money. And, although the examples are bleak, the narrative is not without its notes of hope. A much loved dog is found a home. A church steps in to protect a hard working family threatened with eviction. A court decides against the finance company loading a family with financial burdens.
The second section of the book is very much a summary of “Bull by the Horns”. The events in which Bair had a major part – Forbes Magazine called her the second most powerful woman in world at the time - up are recorded in careful detail, with perceptive comments throughout about the effects on ordinary people. As one commentator says, “She never forgets that her most important constituency isn't the thousands of banks she regulates but the millions of Americans who use them.” And she writes positively about the work of her dedicated team at the FDIC, “No depositor has ever lost a penny of insured deposits throughout the agency’s eighty-year history.”
Although this book is written in an American context, many of the principles apply to the British setting. Northern Rock’s collapse was as a result of sub-prime mortgage lending and securitisation. Whatever the case, when it comes to those less well off, or suddenly plunged into hardship, compassion and care are universal requirements, and they will ultimately contribute to the health and well-being of a country’s economy.
Acemoglu and Robinson in ”Why Nations Fail: The Origins of Power, Prosperity and Poverty” argue that economies are all somewhere on a spectrum between being “extractive”, allowing political and economic elites to serve their own interests and being “inclusive”, in which case they create incentives which mean the interests of all to be served. Bair’s work places her as someone within a highly extractive system working to mitigate its worst effects. Her writing expresses her hope that an inclusive economy is the something that emerging generations should pursue.
It is a book which needed to be written and needs to be read. If Sheila Bair’s work helps prevent a future crisis and leads to a brighter and better future, it will be well worth it. At a time when many economists are warning of danger signs in developed economies, especially with personal debt reaching unprecedented levels, I admire her optimism.