The '08 recession, explained

The Federal Reserve controls the direction of our entire economy through setting interest rates, managing the money supply, and lending money during economic hardship. But who controls the Federal Reserve? The answer is the private sector. Specifically, the Federal Reserve operates through exclusive partnership with the country's leading financial institutions. The policymaking branch of the Fed, the Federal Open Market Committee (FOMC), includes board members hand-picked by banks. When the FOMC lowers the targeted interest rate, the private financial sector increases the amount of loans it gives out because it becomes cheaper to do so. Leading up to December 2007, banks and other financial institutions took advantage of the Fed's lower interest rates. Wall Street issued predatory, high-risk loans, with racial minorities disproportionately targeted. Soon after, economic chaos ensued.

Regulation, or lack thereof

In the U.S, multiple agencies are in charge of regulating the private sector's malicious activities. Yet, leading up to the '08 recession, these agencies neglected to take action against high-ranking financial institutions and their risky loans. In the housing market, banks gave loans to borrowers with no income, no job, and no assets. Analysis from the S.E.C. in 2013 found that 40% of Bank of America's mortgages did not meet the company's own standards. Unfortunately, the S.E.C. only investigated and regulated after the affair. Moreover, the FOMC consistently downplayed the housing bubble in meetings leading up to the 2008 crash. The transcripts of the FOMC meetings reveal that committee members viewed the housing sector as separate from the rest of the economy, rather than as an interconnected part of the overall economy. Eventually, the government ended up stepping in. However, government regulation would come in the form of bailouts for banks instead of harsh reprimands.

The congressional solution to the economic crisis was the Troubled Asset Relief Program (TARP). The policy would allow the U.S to purchase the toxic assets from the banks, relieving them of their troubles. Essentially, it granted welfare for the rich. MIT professor Deborah J. Lucas estimated the cost of the bank bailouts at $498 billion. Indeed, the main winners were large, unsecured creditors of large financial institutions. The losers were taxpayers who directly subsidized the banks. The impact is larger than the economy; it was cultural. The results of the 2008 election promised change for the average consumer, but policies that subsidize the rich were a direct betrayal. Thus, our citizens became fed up with private interests controlling their livelihoods. The Occupy Wall Street movement kicked off, highlighting America's wealth inequality. A decade later, not much has changed.

Right now, banks and financial institutions are participating in the same fraudulent activities that caused the financial crash of 2008. Regulators back then didn't act fast enough. Similarly, today, regulators leave high-risk loans largely unaddressed. The IMF warns that the banking sector's vulnerabilities can spill over to the rest of the economy, just like in 2008. Every era has its economic issues. Our generation must prevent another economic catastrophe through legislation targeting the rich financial sector. By regulating the loans provided by banks and other financial institutions, we can better prevent future abuse. Indeed, the impacts of the last recession were catastrophic, with one-fourth of Americans losing 75% of their wealth.

— Samyak Duggirala