Looking Back on the Financial Crisis With Rahm Emanuel, David Axelrod, and Hank Paulson

Plus, bonus coverage of two crises to come: the student-loan bubble and retirement-savings vacuum.

Rahm Emanuel, Neel Kashkari, and Andrew Ross Sorkin at the Spertus Institute   Whet Moser/Chicago Magazine

The audience and press had started to trickle out of “Five Years Later: A Financial Crisis Symposium,” a star-studded symposium assembled today at the Spertus Institute by the talents and connections of David Axelrod (Institute of Politics) and Hank Paulson (Paulson Institute). Larry Summers, Chris Dodd, Barney Frank, Rahm Emanuel, and Charles Schwab had all spoken their piece on one of the most analyzed events in economic history. After a day-long firehose of acronyms and analysis, what more was there to say?

But in the final session, plaintively titled “Where Are We Now?"—spoiler: no one knows, though “out of the fire and into the woods” seems to capture it—there was still time for surprises. Paulson, the Barrington High grad, former Goldman Sachs CEO, and Secretary of the Treasury during the depths of the financial crisis, reflected on one of the things he, his colleagues, and the people who cover them didn’t predict about the bailouts:

I’ve had a good number of politicians say to me, and a good number of members of the press say to me, that the one thing we all underestimated—and we knew it was going to be an unpopular vote—would be the extent of how unpopular it was.

You might have known. But I would say that both Democrats and Republicans were shocked at how angry the American people were. And the financial press was too.

It was somewhat less of a surprise in context. Paulson had just praised that George W. Bush for ignoring the polls, and condemned those few in his circle sweating the political risk as “useless.” By Paulson’s logic, there was no choice, even for the bonuses that financial entities doled out. (Barney Frank, a bit closer to the pulse as a House member, said that the AIG bonuses “almost overwhelmed our ability to govern.") It had to be done, polls be damned. Because the U.S. doesn’t nationalize troubled banks, the capital infusions were voluntary; because capital infusions stigmatized the recipients and signal vulnerability, Paulson and his colleagues had trouble getting banks to accept them; so compensation was the spoonful of sugar to make the medicine go down.

“We could not have done that if we had put strong compensation restrictions on the banks,” Paulson said. “But if we’d done that, we wouldn’t have been able to go out broadly and make the banks go into that program. If we were nationalizing banks when they were failing, it would be a different matter.”

Nonetheless, Paulson seemed genuinely stunned at the political aftermath, one that is now overwhelming our ability to govern: the crisis of the shutdown and the debt-ceiling brinkmanship evolving out of the financial crisis. Speaker after speaker—Chris Dodd, Neel Kashkari (former Assistant Secretary of the Treasury for Financial Stability), Barney Frank, Emanuel—did not see any way the actions taken in the storm, such as the auto bailout and Dodd-Frank, could be passed today. Emanuel quoted himself on this: “a crisis is an opportunity to do big things.”

We may, however, get other chances, as other speakers saw more crises on the horizon. “Up and Down Wall Street: A Financial System on the Brink,” looked forward as much as backward, as some of the most powerful figures in finance gave the politicians more to worry about, not to mention the public. Charles Schwab lamented that the average person doesn’t have the background to successfully manage a 401(k), creating “a silent majority desperate for income. They’re chewing into their capital.” There’s not much capital to chew into: an average retirement-account savings of $12,000 for near-retirement households.

Laurence Fink, chairman and CEO of BlackRock, agreed, concluding that increased longevity will necessitate “glide paths” into retirement: “it’s a real problem that the average American thinks he’ll retire at 62. Why would anyone want to retire with a third of your life left?” Alternately, Fink joked that you should be nice to your kids, since you might need to depend on your dependents.

Or… maybe you can’t depend on them. Ruth Porat, CFO of Morgan Stanley, warned that the trillion-dollar student-loan market could be the next Fannie and Freddie. (Porat asked how many audience members had student loans; few in the audience were part of that potential bubble.)

That’s the flipside to Emanuel’s now famous dictum about never letting a crisis go to waste—what’s possible during the grind between crises. “Go back and look at American history,” Neel Kashkari said. “Think of one example when our democracy has prevented a bad idea. Our democracy is great at cleaning up a mess after it’s happened. Think about climate change: how hard it is to get people to agree whether climate change exists, and if so, who should pay for it.”

Right; I knew there was a crisis in there I’d missed.

 

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