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  • Print publication year: 2013
  • Online publication date: January 2013

Preface

Summary

The outrage that ordinary Americans feel over the 2008 financial crisis has not only persisted, it has intensified. Many people are angry because the U.S. government resolved the immediate threat to the financial system by issuing massive handouts to the very segment of the private sector that caused it in the first place. For some both inside and outside the financial services industry, the government should have let companies that made poor business decisions go bankrupt. For others, the government should have assisted individuals and companies caught up in the crisis with different types of intervention than it did. In July 2010, Congress passed a major piece of reform legislation attempting to make sure that such a crisis would never happen again. Yet before the ink on the bill was even dry, some vowed to work to repeal it. The media labels anti-bank sentiment as “populist,” yet people's reactions are far from irrational or exaggerated. In the wake of the crisis, the benefits and burdens of the U.S. financial system do not appear to be evenly spread across the American taxpayer base or across industries. A coherent political reaction did not organize because political parties and interest groups have not been able to channel popular sentiment to promote reform in the same way they do in other policy issue areas.

Economic treatments of the American financial system emphasize the role played by markets and the accumulation of leverage in contributing to periodic crises. This book questions the role that U.S. political institutions play in making the system prone to episodes of instability. It does not just consider past crises, as important as they are, but the players, institutions, and politics that will surround crises to come. While many simplistic explanations for the political power of Wall Street rest with the size of corporate contributions to politicians’ campaigns and the overall amounts paid to lobbyists in Washington, these explanations are too easy. Many industries, such as pharmaceuticals and oil and gas, also donate large sums and employ high-level government relations experts in Washington.