The Revisionist History of the Financial Collapse: Bernie Sanders and the Pitchfork Left Cannot Have it Both Ways

The Revisionist History of the Financial Collapse: Bernie Sanders and the Pitchfork Left Cannot Have it Both Ways

President Obama and key policymakers huddle before the final votes on Dodd Frank.

Bernie Sanders, the most recent and the most high profile messiah of the pitchfork ideologue Left sparks a lot of outrage by charging that "illegal" behavior of the big banks that he (supposedly) believes caused the Great Recession was allowed to stand without consequence in the wake of the financial collapse. He even deplores the fact that bank executives didn't get "a record" for this illegal behavior, suggesting that the behavior is not merely illegal but criminal. But then he goes on to describe in some detail how those same banks have paid some of the largest fines in history for those activities, quickly shooting his own argument in the foot, though his bands of cheering supporters seem not to notice.

Then again, yet another cornerstone of the "message" Sanders hammers home is that the collapse was caused by lax regulations of the banks, precipitated by the repeal of Glass Steagall during the tail end of Bill Clinton's presidency. Bernie Sanders, Elizabeth Warren and others argue that it is this legal carte blanche to the nation's financial institutions that allowed them to play fast and loose with financial instruments, write liar loans, and tailspin the economy into the gutter. They suggest reinstating Glass Steagall. Bernie Sanders has proposed, in Congress, a bill to break up any banks that is considered systematically significant.

This, right here, is the problem. The Pitchfork Left's deities, most prominently Bernard Sanders, are feeding two different, contradictory explanations of the financial crash to their followers and to much of the country. The crash was either caused predominantly by the illegal, criminal behavior of the financial industry, or it was caused by legal deregulation that allowed the banks to legally perform the many financial follies that led to the Great Recession.

Evidence, to the extent that is still relevant, points to the systematic deregulation of our financial industry - the consolidation of lending and investment banks, ridiculously low capital requirements, subprime loans, the haywire and unregulated derivatives (but Bernie voted for it, an inconvenient truth craftily hidden from his adoring fans), and regulators under the Bush administration taking the most laissez faire approach to using what little tools remained at their disposal after Graham-Leech-Blailey - as the predominant cause of the economic catastrophe at the end of the Bush presidency - a disaster the new president had to spend a great deal of time, effort and political capital dealing with. As Bernie Sanders often admits on the campaign trail without giving credit where it is due, the new administration - the Obama administration - ended up exacting the largest financial penalties from the bad actors in history, and yes, they have brought criminal charges and sent people to jail.

The Financial Crisis Inquiry Commission found a whole lot of lax regulatory regime and corporate greed and lack of self-regulation at the core of the collapse, but they did not find any criminal wrongdoing or even any systemic illegal action as a cause of it. While it is entirely fair to discuss the outrage that low level drug offenses are considered crimes while Wall Street's greed upending an entire economic system was not, that is a failure of law, not one of prosecution. Indeed, the only potential crimes the Commission refers to are incident reports of possible mortgage fraud filed by the lending institutions.

President Obama and his Democratic allies in Congress acted decisively, shoring up capital requirements, charging regulators with the authority and responsibility to in fact break up banks if they pose a systemic risk, regulating derivatives, establishing the nation's first dedicated federal agency to regulate consumer financial products, and subjecting the biggest financial institutions to a stress test to prove they could withstand a financial calamity much worse than 2008's without public assistance.

As we reported here, all institutions that fit the definition of systematically important passed the stress test last year, ensuring that too big to fail in fact no longer exists. While the banks are big, the stress test ensures that they will not fail without public assistance. The test will be repeated periodically to ensure things stay that way.

But this actual record and real history of pre and post-financial crash public policy is an ineffectual tool if one's goal is to develop and gin up paranoia and public hatred against "the system." The idea that with the right leadership, the system can be and has been corrected is contrary to the frame of mind which promotes the need for a "revolution." Telling people the truth - that it was ineffectual law and lax enforcement from the previous administration(s) that has been rectified by the present - was at the root of the financial crisis fails to fan the flames of charging at Wall Street and the White House with pitchforks and torches.

Certainly, corporations run afoul of the law all the time, and on more occasions that we know commit crimes. But the question here is not whether financial giants had performed illegal activities - they had, for which Sanders and Warren gawk at the size of the fines, and as noted above criminal prosecution also took place - rather, the question is whether the illegal activities of banks were the major cause of the collapse.

Those who care about the truth - or at least for consistency in narrative - must recognize that the Pitchfork Left and their Dear Leader should not be allowed to get away with presenting contradictory narratives of the financial crisis, conveniently parsed to fuel rage. They must settle on one narrative. The crash was caused primarily either by what they believe to be criminal and illegal behavior, rendering the case for regulatory changes unnecessary, or it was caused predominantly by legal deregulation, which evaporates the case for mass perpwalks on Wall Street. The facts point towards systemic failure of the law as the right option, but those who dissent from that are free to make their case. What they cannot do is to have it both ways.

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