From Main Street to Wall Street: Analysing Opposition to the Wall Street Bailout

Image credit: https://www.nbcnews.com/business/markets/wall-street-whipsaws-election-winner-remains-far-clear-n1246233

by Dan Crowley

The Wall Street Bailout (WSB) refers to the purchasing of toxic mortgage-backed security assets from failing banks by the US Federal Reserve (Fed) in the wake of the 2007-08 financial crisis.  The Fed was granted these powers under the Troubled Assets Relief Program (TARP), a $700 billion program enacted by Congress in October 2008 to stabilise and restore confidence in the American banking system. I will make three arguments about why this response to the crisis was so unpopular: firstly, because it was seen by ordinary Americans on ‘Main Street’ as a handout to Wall Street, thus inflaming class tensions; secondly, because bipartisan political resistance broadened the base of public opposition; and finally, because public grievances were intensified by a variety of media voices.  

A crucial cause of backlash against WSB was the impression formed by the public that it served the private interests of bankers rather than the public interest. Four features of the bailout helped form this impression: many executives of rescued banks received generous bonuses after the bailout; many political architects of the bailout had backgrounds in banks like Goldman Sachs, so much so that they were nicknamed ‘Government Sachs’; only one banker was ever prosecuted and jailed for financial corruption and mismanagement; and the bailout did little to stem the flow of foreclosures and lay-offs for American workers. In a letter to the editor of the New York Times, Roy Weber put forward a simple case for why the government had chosen to bail out the banks; “I cannot help but think that this is more a bailout for its friends in the financial industry than something needed to help ordinary Americans.” Comments from readers published in Michelle Singletary’s weekly Washington Post column expressed unanimous distaste for the bailout, including this extreme lamentation from Jackie Smurlo: “We are being raped and pillaged. Who is going to come to my rescue when my retirement fund is worthless? No one. I don’t want to scream. I want to cry.” Similar anti-elitist sentiments were voiced by protesters outside the Wall Street stock exchange: one, dressed up as a banker holding a glass of champagne, sarcastically exclaimed “this is like Christmas come early!”; others played dead on the steps of the building with signs reading “GREED KILLS”; and one woman told a reporter “we can’t believe the government is giving away 700 billion of our dollars to these wealthy fat cats on Wall Street!”.

Such palpable anger against the bailout’s elite bias reflected cultural tensions between American classes. In his book on the cultural impacts of modern American capitalism, political analyst Thomas Frank argued that attitudes towards extreme personal wealth shifted in the Nineties, with resentment of the super-rich superseded by entrepreneurial admiration under a “new consensus” of “extreme capitalism”. The aftermath of the financial crisis unravelled this consensus, exposing deep-seated cultural divisions between blue and white collar Americans. A popular protest song against the WSB, ‘Shuttin’ Detroit Down’ by John Rich, captured the nature of these divisions, contrasting the greed and selfishness of bankers with the hard work and humility of “real” Americans:  

My daddy taught me that in this country everyone’s the same
You work hard for your dollar and you never pass the blame
When it don’t go your way 

Now I see all these big shots whining on my evening news
About how they’re losing billions and it’s up to me and you
To come running to the rescue 

Well pardon me if I don’t shed a tear
Cause they’re selling make believe
And we don’t buy that here. 

Cause in the real world they’re shutting Detroit down
While the boss man takes his bonus pay and jets off out of town
And DC’s bailing out them bankers as the farmers auction ground.

Yeah while they’re living it up on Wall Street in that New York City town
Here in the real world they’re shuttin’ Detroit down.

Using these sources to understand the unpopularity of WSB assumes that they are representative of broader public opinion, rather than just an outspoken minority. Such an assumption is reasonable given these sources are drawn from different sectors of the American public – Rich is a country music artist from Texas and Tennessee, while comments from readers in national newspapers and protesters outside Wall Street represent a more metropolitan perspective. On the basis of these sources, it can be argued that public resistance to WSB was more than just a resistance to a specific instance of monetary policy, but a rejection of the broader cultural climate in which this policy was formulated. Though Frank argued that “populism… against the corporate order” was replaced by “pro-corporate populism”, the sentiments of Americans like Weber, Smurlo and Rich marked a return to the “traditional language of social class”. The return of such class tensions can be understood in light of growing economic inequality in America, which economist Joseph Stiglitz argued had “eviscerated… America’s middle class”. Amidst such evisceration on Main Street, Wall Street was no longer seen as a “device of popular empowerment”, but a predatory ruling class out of touch with the values of middle America. Because the bailout was viewed as a creation of and for this class, it was thus strongly resented by sections of the American public. 

Bipartisan resistance to the WSB was another key factor in the unpopularity of the bailout, as it arguably broadened the base of public opposition. Opposition to TARP in the US senate bridged party divides, with the 25 dissenting senators forming “one of the most curious coalitions of lawmakers ever to share common ground. On the one hand, the size and scope of the Fed’s intervention into financial markets sparked backlash from conservatives in the Republican Party, who saw the government preventing the failure of private firms as decidedly anti-capitalist. A prominent proponent of this argument was Republican Senator Jim Bunning, who repeatedly likened public bailouts to socialism, including this comparison to the communist state of Venezuela: “The only difference between what the Fed did and what Hugo Chavez is doing in Venezuela is Chavez doesn’t put taxpayers dollars at risk when he takes over companies – he just takes them.” On the other end of the political spectrum, “liberal Democrat” Russel Feingold argued that the enormous cost of the bailout was an unfair imposition on middle and working class taxpayers. Feingold voiced three main grievances about TARP: the government had failed “to offset the cost of the plan” for taxpayers; TARP failed to address the “flawed regulatory structure” that had “permitted this crisis to arise in the first place”; and not enough was being done about the hardships faced by ordinary Americans amidst the “credit market collapse” and “housing crisis”. 

Such cross-party resistance was a crucial part of the bailout’s widespread unpopularity, particularly in light of the increasingly partisan nature of American politics. In their 2008 study of political polarisation in America, political scientists Fiorina and Abrams concluded that America had undergone a process of “party sorting” over the preceding decades, with the two major political parties becoming increasingly distinct from one another. As a result, Fiorina and Abrams argued that partisan identification played a more central role in forming the political positions of the American public in the 2000s than in the second half of the twentieth century: “Party sorting means that party ID today is more closely related to issue positions and ideological position than it was a generation ago”. If, as these two authors suggest, Americans were increasingly clustered around partisan positions at the time of the bailout, it can be argued that the cross-party coalition formed by the likes of Bunning and Feingold broadened the base of opposition to the bailout, ensuring that it was not limited to just one partisan cluster.

Such an argument assumes that partisan Americans associated the dissent of politicians like Bunning and Feingold with the view of their political party as a whole. This is not a straightforward assumption, because TARP was supported by a “bipartisan majority” in Congress and both major party nominees for the 2008 Presidential Election, John McCain and Barack Obama, publicly supported the bailout. Certainly then, it is unclear which of the two views American voters identified as the uniform view of their political parties, or whether they associated any one view at all with their parties. However, multiple polls have found strong and consistent levels of opposition to WSB amongst both Democrats and Republicans: a Gallup poll found 61% of Republicans and 57% of Democrats opposed “the federal government taking steps to help prevent major Wall Street investment companies from failing”; a Los Angeles Times poll found that “reluctance to rescue private firms runs across… Democrats and Republicans”; and a Huffington Post poll concluded that,  four years after TARP, “disgust” at the bailout “is bipartisan”, with 87% of Republicans and 81% of Democrats opposing the bailout. Although these polls do not cite specific reasons for the provided responses, and thus cannot conclusively prove that respondents’ positions were shaped by the partisan opposition of Democrat and Republican politicians, they nevertheless suggest that distaste for the bailout amongst partisan politicians was shared by their parties’ rank and file. It can thus be extrapolated that dissenting members of the political class, through their partisan clout and influence, played an important role in turning public opinion against the bailout, fuelling political grievances on both sides of the political spectrum. 

Vocal resistance in the media also played a significant role in shaping the unpopularity of WSB. Media coverage was significant not just because of its frequent negativity, but because of the diversity of the media players that voiced this negativity. In her study of media coverage “in the Age of Billionaires”, anthropologist Angelique Haugerud argued that political satirists had become increasingly important voices in public debate about the financial system, while the warnings of more “serious voices” had gone “unheeded”. Satirists were indeed outspoken in their criticism of WSB, offering biting commentary like this monologue from Jon Stewart on the Daily Show; 

“Our big banks… bundled these loans up into bails of shit loans… at which point those companies came to us and said ‘if you don’t give us $700 billion everything you love and hold dear in this world will turn to Tang, the orange juice substitute once drank by astronauts….”

However, while Haugerud downplayed the role of more traditional media voices in raising “red flags in eras of excess”, established media organisations did play a key role in shaping public opposition to WSB. In the case of Fox News, the rollout of TARP was used to attack president Obama: Business News anchor David Asman accused the president of “political corruption” by turning TARP into a “slush fund”; hosts Neil Cavuto and Dave Ramsey criticised the administration’s “punitive” levies on rescued banks; while Republican Louie Gohmert on Cavuto’s Your World show accused Obama’s cabinet of “treating (TARP) like their own piggy bank” in order to win “more and more power” over banks. Further, while other news networks and newspapers were not as directly partisan as Fox News pundits or as biting as satirists, they nevertheless gave an important public platform to prominent expert critics: former TARP Inspector General Neil Barovsky appeared regularly on CNN, PBS and C-SPAN to criticise its rollout; Nobel prize winning economist Joseph Stiglitz wrote multiple columns in national newspapers, comparing the bailout to “a massive transfusion to a patient suffering from internal bleeding”; and outspoken economist Paul Krugman wrote equally scathing columns, blasting the Fed’s plan as “bailouts for bunglers”.

Each form of media coverage of the bailout was important and influential in its own way. While Haugerud has argued that satirical critiques of Wall Street have cut through more than critiques from more traditional news sources, other commentators like Matthew Levendusky have argued that “partisan news outlets” like Fox News have played a pivotal role in shaping public opinion, polarising sections of the American public by creating an “echo chamber” that has entrenched their political beliefs. Further, while Haugerud dismissed the effectiveness of dissent from established news media on the grounds that their warnings had previously been “ignored or downplayed”, media coverage of the WSB had an important qualitative difference in that the journalists were reporting on an issue that, as this essay has shown, had already stirred social and political controversy. Accordingly, inasmuch as the testimony of experts like Barovsky, Stiglitz and Krugman corroborated and authenticated sentiments already felt by sections of the public, expert media coverage in mainstream media outlets still played a crucial role in turning public opinion against the bailout. Thus, although satirists, conservative Fox News pundits, and experts in the mainstream media criticised the bailout in different ways and on different grounds, it can be argued that their opposition worked in conjunction to amplify and intensify pre-existing public grievances. 

In conclusion, after studying primary sources to examine more closely why WSB was so unpopular in the first place, I have argued that the bailout stoked cultural tensions between classes, that its ability to inflame political grievances on both sides of the political spectrum brought together otherwise disparate, partisan Americans, and that a diverse array of critical media voices intensified backlash against the bailout. 

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