Connecting the Great Recession of 2008 to the Capital Insurrection of 2021

Since the first time I saw the terrific documentary Inside Job (narrated by Matt Damon, the new pitchman for I’ve been fascinated by the events leading up to and surrounding the Great Recession of 2008. It just felt like complete lawlessness, out in the open, as people and businesses at so many levels of American society ignored and broke with norms, and in some cases, laws. A lot of money was being made for all the wrong reasons.

The story of the Great Recession began with a great idea, a financial instrument called the mortgage-backed security (or “MBS”), which was invented by a bond trader named Lewis Ranieri at Solomon Brothers in the 1970’s. It allowed their customers to invest in an MBS and they would profit from the interest stream created by the list of mortgages that made up a mortgage-backed security.

What happened over the next three decades was an explosion in similar, and increasingly complicated, financial derivatives (they “derive” their value from something other than the investment itself) instruments. The virtual machinery that created and distributed these derivatives was known as the “Securitization Food Chain.” In its simplest form, this included the homeowners, mortgage lenders, investment banks, and investors. This system could have worked beautifully, as long as everyone used common sense and no one got greedy.

Instead, what occurred was self-interest run amuck at every link in the chain. Those wanting to own a home borrowed sums of money they couldn’t possibly repay, mortgage lenders continually lowered their underwriting standards to make increasingly risky loans, and investment banks were the most reckless of all, building financial derivative businesses with more and more borrowed money.

This looming disaster was no secret. Brooksley Born and the Commodity Futures Trading Commission lobbied Congress and the President for permission to oversee the derivatives market and were not only shot down, but eventually inspired legislation that banned the regulation of financial derivatives. A professor of finance from the University of Chicago’s famed Booth School of Business, Raghuram G. Rajan, circulated an article entitled “Has Financial Development Made the World Riskier?” It was widely panned. Many other papers and books were written and the International Monetary Fund (an international financial institution designed to foster financial stability) attempted to intervene.

Eventually, the entire mess lurched on and morphed into a giant de facto Ponzi Scheme, ready to blow. Warren Buffet, in fact, referred to derivatives as “Financial Weapons of Mass Destruction.” In the end, the Great Recession had a devasting effect on the lives of tens of millions of people and led to the loss of $2 trillion of global economic wealth. What is most amazing though, is that almost no one, at any level was held responsible.

On January 6th, 2021 a few thousand followers of former President Donald Trump broke from a mostly peaceful protest and conducted a violent attack on the U.S. Capitol Building in Washington D.C. in an attempt to disrupt the counting of the electoral votes that would formalize the election of incoming President Joe Biden. Watching the attackers; with their swastikas, confederate flags, and Trump swag; chilled me in the same way the Great Recession did. It was also lawlessness happening right out in the open, and almost no one was doing anything or trying to stop it.

The Insurrection’s devastation occurred in a much more immediate and spectacular fashion. Assailants trashed the Capitol, assaulted the police, and threatened the legislators working inside. People died and, while the world watched, an important symbol of American democracy was vandalized by citizens, feeling marginalized and inspired by conspiracy.

Like in 2008 there were warning signs that were largely ignored. Trump had invited sycophants via Twitter, claiming “Be there. Will be wild.” Everyone saw this. The Secret Service prepared a brief entitled “Wild Protest.” There were numerous red flags popping up all over social media. Facebook was later revealed to be too slow to react to the spread of conspiracy misinformation and inciteful content. Locally, the Capitol Hill police had received numerous threats of violence.

Like in the Great Recession there were those who saw that what was happening was wrong and tried to intervene and stop things, and they too were woefully undermanned. But here it was the Capitol police, and protecting the Capitol Building was their job. Like Brooksley Born and Raghuram G. Rajan, they were completely outnumbered and overwhelmed (in this case) by the planners and participants in the Insurrection.

While many of the vandals responsible for the actual damage done on that day have been arrested and convicted, as of this writing, none of the planners who planted the seeds of destruction have yet been held responsible. It’s this escape from culpability that seems so reminiscent of the Great Recession. Many pointed to Section 3 of the 14th Amendment to the Constitution, which says that no Federally-elected official (including the President) should engage in insurrection against the United States. As of this writing there is still a United States House Select Committee investigating the attack, so this story is not quite over.

You could point to the Tea Party (a movement whose foundation is that ordinary people are ignored by the government and the elites) as the crucial link between these two events, as part of the inspiration for the Tea Party was a reaction to Barack Obama’s handling of the Great Recession. That populist philosophy is what fueled the Trump followers who blitzed the Capitol building.

In a more general sense, what seems to connect these events is the quest of a goal (whether it be political power or economic profit) without regard for the fate of others. Most of the players in both of these situations acted without honesty, integrity, or character. In both cases, it felt like I was watching a colossal bank robbery that was happening out in the open and, for the most part, nobody was doing anything about it.

To stretch the thesis a little further, and have some fun with it, the emergence of the University of Oregon Ducks college football program in the late 1990’s and throughout the 2000’s hit me in a similar fashion. After going through a decade or so spending all of my time working, I finally started watching some sports again.

One of the first things I saw was Oregon Ducks football and it floored me. Their offense moved quickly from play to play and there was no huddle between plays. They used crazy formations and pulled out a lot of trick plays. Instead of punting on fourth down they went for it. Even something that was usually mundane and automatic, like the extra point after a touchdown, became a spectacle. You just never knew what was going to happen.

An Oregon quarterback might scramble or run on any play. Wide receivers were routinely used as running backs and some of the players were also stars on Oregon’s track and field team, in the spring. They had all kinds of crazy uniforms because of their direct connection to footwear and apparel giant Nike and its colorful founder, Phil Knight. It didn’t occur to me at the time, but what Oregon was doing was breaking norms, albeit in a positive and groundbreaking way. Today, you can see aspects of the Oregon approach everywhere, at every level of competition.

Focus on Food: Panini Press

In my short stint working at Facebook, I grew to love the panini press. You use this electronic device to melt the cheese inside and toast the bread outside. It’s kind of a like a waffle iron for sandwiches and will set you back between $25 and $125 for a good one. It just elevates the sandwich to a whole new level and is highly underrated. If you have room on your counter and like sandwiches, well, this is a nice little way to treat yourself.

Focus on Exercise: No Equipment No Gym Strength Training

Even before the Covid-19 pandemic hit I was doing my own version of the cobbled-together no equipment strength workout while watching college football and basketball games. My only pieces of “equipment” are the kitchen table, the coffee table, and the living room rug. The workout incorporates physical therapy, yoga, and your standard old-school exercises like push-ups, crunches, and lunges. Use Google, the internet, and the advice of your doctor to put one together.

Focus on Investing: Vanguard S&P 500 ETF (ticker symbol VOO)

This is your standard go-to low-cost index fund that is a legitimate gauge of the entire U.S. stock market. If you just want to invest in a broad-based fund that trades like the stock of an individual company and tracks the entire stock market this is the one you want. The returns include your piece of the dividends of the companies in the index and the cost is just three basis points (.03%, or three one-hundredths of one per cent).

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