Without a doubt, the economy is complicated. And there were several factors involved in the meltdown in 2008.
To a certain extent, I guess, everyone was culpable. But some played a greater role than others.
And I don't think there can be any doubt that the banks played a huge role in what happened. Whether one is an economist or an innocent bystander, I think that much is clear.
Given the fact that the financial institutions received so much bailout money from America's taxpayers — a down payment, as it were, on the expectation that banks would, in turn, make loans available that would keep businesses afloat and help create jobs — the news that they have been rewarding their top dogs with massive bonuses (or, in the case of Citigroup, proceeding with plans to purchase a brand–new corporate jet) while, as Krugman puts it, "the rest of America, the victim of a slump made on Wall Street, continues to bleed jobs" has provoked anger and resentment.
Clearly, the nation's financial future depends upon the solvency of the banks. It would have been reckless and irresponsible to allow them to go under.
But it seems that the banks have forgotten to whom they owe their continued existence.
Ask the people at Goldman, and they'll tell you that it's nobody's business but their own how much they earn. But as one critic recently put it: "There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system." Indeed: Goldman has made a lot of money in its trading operations, but it was only able to stay in that game thanks to policies that put vast amounts of public money at risk, from the bailout of A.I.G. to the guarantees extended to many of Goldman’s bonds.
It's a complicated matter, this sour economy. There are no easy answers. But Krugman's New York Times colleague, Frank Rich, lent a little perspective to things in a recent column, in which he reminded readers that John D. Rockefeller's Standard Oil was known as "the Octopus" early in the 20th century.
"Goldman is this century's octopus," he wrote, although there are differences, most notably that Goldman Sachs was not a monopoly.
But he proceeds to observe that "the tone–deaf Treasury secretary, Timothy Geithner, never ceases to amaze. His daily calendars reveal that most of his contacts with the financial sector in the first seven months of 2009 were limited to the trinity of Goldman Sachs, Citigroup and JPMorgan. ... It's hard to see how any public official can challenge a culture that he is marinating in, night and day."
It's a complicated mess, all right. And Krugman's column should be read in its entirety, but his conclusion is worth jumping to.
"The main thing for the time being is probably to do as much as possible to support job growth. With luck, this will produce a virtuous circle in which an improving economy strengthens the banks, which then become more willing to lend.
"Beyond that, we desperately need to pass effective financial reform. For if we don't, bankers will soon be taking even bigger risks than they did in the run–up to this crisis."
Someone — if not the president, who appears to possess principles but has not clearly demonstrated his commitment to most of them, then someone like a Treasury secretary, although it is far from clear that this Treasury secretary has the cojones for the task — must insist that the financial institutions understand that things are different now.
And if, as Krugman writes, they feel it is no one else's business what their earnings are, they need to be reminded, in no uncertain terms, why they are still in business.