I have noticed there are a lot of misconceptions about government bail outs and how the finance industry works and and it seems to be partially driven by the 2008 financial crisis. I think after 2008, people have come to think of Wall Street as a mostly fraudulent machine that takes from the poor and gives to the rich. I do not think this is 100% true and I figured I would post this and see what people think. These misconceptions I have outlined stem from my reading of Michael Lewis's Liar's Poker, The Big Short, and Sorkin's Too Big To Fail. Also, for context, I am very much a left-leaning liberal and so this is not a right-wing political take.
Misconception #1: The US gov bailed out the banks to save the rich in 2008
Something I have seen thrown around a lot is that the US gov rewarded the bad-actors in the 2008 crisis by bailing them out instead of sending them to jail. While I think this was partially true, this was definitely not the whole story. In fact, a lot of people forget that on Sept 29, 2008, Congress rejected the bail out bill initially (NPR article link). However, this rejection triggered the Dow to drop 800 points– the biggest drop in near modern history. Europe and Asia markets also started crashing after hearing the news. And I mean crashing hard. And so the House reconvened and on Oct 3rd, they approved the emergency bail out bill to stabilize the markets. “This is not an easy vote; our constituents are not happy about this and rightfully so,” said Chis Dodd (senator who would draft the Dodd-Frank act to prevent another 2008). The US gov would eventually recoup most of the money it lent out and actually make some profit (although not if you count for inflation) like the $22 billion the US gov made off the AIG loan. Most economists would agree that the bail out bill was essential in sending a message to global markets that the US economy would re-stabilize. Whether more people should have been prosecuted is up for debate and I am sure a lot of fraudulent execs walked away free. This NYT article summarizes how the 2008 bailouts were basically “misinterpreted” by the public as bail outs for the rich instead of a necessary damage-control intervention.
Misconception #2. The Financial Industry is mostly a scam
This one might be obvious to people in this sub. But your average American (one who doesn't invest or read economic news etc.), especially after 2008, tends to think that the Financial Industry is just an evil hedge fund manager who moves money from one place to another and pockets the difference. While this might be true in some cases, the financial industry is really a massive and diverse industry that provides incredibly valuable services to the US economy and economies abroad.
50 years ago, if you discovered some crazy new technology in your garage, you couldn't just go out and find investors the next day to help you kickstart your innovative idea into a full-fledged business. You had to walk to your local bank (which was likely a small regional bank) and convince them to give you a loan which would still probably be a very small loan. And this could sometimes take years. Nowadays, you can get hundreds of millions of dollars in capital in a matter of weeks (if the idea/product is truly that good). I think a lot of people don't realize this and simply think Wall Street doesn't provide any value to the American public and simply takes from us. Our entire tech industry is only possible because of our financial industry because of the way tech companies operate (growth first profit later).
There are probably much more but these are the top 2 I could think of. I think for an industry to exist, it has to provide way more value than waste. Sure, I'm sure Wall Street has a lot of waste and does harm the public in many ways. But so does Apple or Walmart. So do a lot of companies. However, I am convinced the value these companies/industries provide must outweigh the downsides or else the industry would not exist in the first place. Money isn't stupid and it when the waste piles up, the money will eventually disappear. The rise of the Finance Industry in the 1980's will often go unnoticed as one of the greatest paradigm shifts in the US economy and part of the reason we are where we are as a country in the global world.
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