The collapse of two banks encourages populism in the United States

WASHINGTON (AP) — No one can say that Mike Pence and Bernie Sanders are political allies.

But faced with the spectacular bankruptcy of two banks, the former right-wing vice-president and the social-democratic senator express remarkably similar positions. Republican Pence lamented that “we live in a world where certain politically privileged corporations are backed, supported and bailed out by the government.” Sanders, an independent who votes with Democrats, said “we can’t continue down the road of more socialism for the rich and tough individualism for the rest.”

That sentiment reflects the populism that has permeated both mainstream parties for the past 15 years, since shaky financial institutions raised concerns about the broader economy. The 2008 financial crisis sparked a political realignment that spurned ruling-class elites and figures, with often unpredictable results for Democrats and Republicans alike.

“There is growing discontent with corporate greed, which is not so much left versus right as it is top versus bottom,” said Adam Green, co-founder of the Campaign Committee for Progressive Change, the first national group to support populism. Senator Elizabeth Warren’s leaning presidential campaign in 2020.

In the wake of the 2008 crisis, the Republican Party was taken over by the Tea Party movement, which called for government downsizing and federal spending restraint. Donald Trump was elevated at the expense of more establishment-identified leaders such as Jeb Bush, John Boehner and Paul Ryan.

On the Democratic side, Occupy Wall Street activists exposed the party’s longstanding ties to big business and energized Sanders’ aggressive fight for the 2016 Democratic nomination against Hillary Clinton. Warren, a bankruptcy expert at Harvard University, became a national political figure with the creation of the Consumer Financial Protection Bureau. It figured so prominently in his campaign that at rallies, his supporters chanted “CFBP,” the acronym for the office.

Meanwhile, a new generation of young, social-democratically aligned lawmakers, like New Yorker Alexandria Ocasio-Cortez, have entered Congress, in many cases having replaced established figures.

The result of all of this is a deeply fractured political environment in which members of both parties respond to an electoral base that does not believe in institutions and disdains the political niceties that were de rigueur in Washington.

At the White House, President Joe Biden tried to navigate these troubled waters by saying Monday that taxpayers would not pay to help failing banks.

“This is important: taxpayers will suffer no loss,” said Biden, whose early days as Barack Obama’s vice president were consumed by the response to the financial crisis.

The current turbulence is different from that. The 2008 crisis centered on bad mortgages held by many banks, while this week’s crisis appears to be limited to banks that were not properly prepared for interest rate hikes.

And while some of Wall Street’s most important companies like Washington Mutual and Bear Stearns collapsed in 2008, there is now little concern about the strength of institutions deemed “too big to fail”. Reforms enacted after the crisis have subjected institutions to increased oversight and regulation, higher capital requirements, and regular stress tests that determine their ability to survive sudden shocks.

Some of the most dramatic moments of the 2008 crisis, such as a rare meeting at the White House between President George W. Bush, Democratic candidate Obama and Republican candidate John McCain, took place weeks before the election. This time, the instability comes as the presidential campaign is still in its infancy.

But those with their eyes on the White House in 2024 are repeating familiar populist concepts.

Pence, who has yet to formally declare his candidacy, said Biden was “dishonest” in saying taxpayers ultimately would not bear to bail out the banks.

Nikki Haley, a former Trump ambassador to the UN who proclaimed her presidential campaign last month, said bluntly: “The era of big government and bailouts must end.”

Trump, who is entering his third presidential campaign, chose to resort to fear by predicting a new depression like that of the 1930s, just as he did during the crisis of 2008.

“WE WILL HAVE A GREAT DEPRESSION MUCH BIGGER AND MORE POWERFUL THAN THAT OF 1929,” he wrote on his social network. “THE PROOF IS THAT THE BANKS ARE ALREADY STARTING TO FALL!

Asked about Warren and other Democratic leaders’ argument that banking regulations imposed after the 2008 crisis and scaled back by Congress during his administration helped stave off current problems, Trump told reporters Tuesday that “the repeal (of regulations) is good”.

“Otherwise there would be a lot more banks in trouble because of regulation,” Trump said, adding that interest rates were too high.

As a highly anticipated presidential campaign approaches, Florida Governor Ron DeSantis has led the populist Republican bent on so-called culture wars over race and gender. Without presenting any evidence, he said Silicon Valley Bank’s diversity, equity and inclusion requirements “prevent them from focusing on their core mission.”

Green said that just as Warren rode the wave of outrage over the 2008 crisis to become a national figure, “it’s clear that Trump’s strategy is to outsmart Republicans and neutralize Biden on populist economics. , just like he did for Hillary Clinton.”

If regulators prove able to quickly tame financial turmoil, the long-term political consequences could be minimal. But the strength of populist politics will endure, especially as Congress must decide in the coming months whether or not to raise the debt ceiling. This, once a simple rite of passage, threatens to escalate into a showdown if Republicans refuse to increase the nation’s borrowing power, which could lead to a catastrophic default.

James Henry, a scholar of global law at Yale University and managing director of the Sag Harbor Group, an IT consultancy, blamed the downfall of Silicon Valley Bank on decades of weak regulation and a “small elite”. venture capitalists and related bankers. the leadership of both parties.

But Henry said the Biden administration had no choice but to step in, given the potentially greater financial threats to the tech sector, making it difficult to diagnose the consequences of the crash for people. ideological reasons.

“There are no libertarians in the financial crisis,” Henry said. “Both sides are looking to be bailed out.”