Necessary Trouble

CHAPTER ONE

BANKS GOT BAILED OUT, WE GOT SOLD OUT

IT WAS DECEMBER 2, 2008, WHEN THE 240 PEOPLE WHO WORKED at the Republic Windows and Doors factory in Chicago got the notification that they were losing their jobs.

Months into the recession launched by the collapse of financial markets, the company, which made energy-efficient windows and doors ideal for the green retrofitting being touted by president-elect Barack Obama, was struggling. But the biggest problem, according to the workers themselves, was Bank of America. Despite a fresh infusion of taxpayer dollars being pumped into the bank’s coffers—$25 billion, supposedly to reinvigorate its stalled lending in the wake of the financial crisis—the bank was apparently unwilling to continue extending credit to Republic.

There had been some indications that things were not going well for Republic, according to Leah Fried, an organizer with the United Electrical, Radio and Machine Workers of America (UE) Local 1110, the union representing the employees. But while the announcement came as a shock, the workers at Republic were not going to join the ranks of the 600,000 other manufacturing workers laid off that year without a fight. “If I don’t fight, I know I lose,” said Melvin “Ricky” Maurice Maclin, vice president of Local 1110. “If I do fight, at least I stand a chance of winning.”¹

Two hundred or so of those window-and-door makers refused to leave, locking themselves into the factory in the first such occupation the United States had seen in decades. Their demands were simple: their legally required severance pay, called for under the Worker Adjustment and Retraining Notification (WARN) Act, which requires sixty days’ notice before a mass layoff. Lalo Munoz, who had worked for Republic for thirty-four years, said, “They decided just to kick us into the streets, with no benefits or nothing, not even what we have already earned.”²

The workers’ willingness to resist surprised the organizers. “We proposed this idea of occupying the factory as a peaceful nonviolent civil disobedience,” Fried told me. “What we didn’t anticipate was everybody wanting to be a part of it.” She’d expected fifty or so workers to stay in the factory, but over four times that number did. “We’re here, and we’re not going anywhere until we get what’s fair and what’s ours. They thought they would get rid of us easily, but if we have to be here for Christmas, it doesn’t matter,” said Silvia Mazon, a thirteen-year employee at Republic at her first protest.³

Their occupation tapped into a growing anger among Americans at the size of the bailout package extended to the world’s biggest banks, the very people responsible for the crisis that had tossed so many out of work, shuttered so many small businesses, and evaporated billions in housing wealth. National media, long unused to covering labor struggles, poured in, speaking to workers through an open door. Rabble-rousing documentarian Michael Moore turned up. So did the local bishop of the Evangelical Catholic Church, James Wilkowski, the son of a steelworker, who administered Communion to the workers in the occupied factory. Jesse Sharkey, a local teacher who was also engaged in a fight over public schools turned up and spoke. Congresswoman Jan Schakowsky (D-IL) paid the workers a visit. And president-elect Barack Obama addressed the workers in a news conference, saying, “The workers who are asking for the benefits and payments that they have earned, I think they’re absolutely right and understand that what’s happening to them is reflective of what’s happening across this economy.”⁴

After six days of splashy media coverage and protests in front of Bank of America branches around the country in solidarity with the occupiers, Republic and the bank agreed to the workers’ demands. In February 2009, California company Serious Materials purchased the factory and agreed to hire back the old workforce.

After the victory, the workers took a “Republic victory tour” to inspire more people to fight back as they had. They told their listeners they didn’t have to take concessions and accept the status quo. “I’d like to think that we helped kick off the next wave, and certainly the chant that we came up with, which was ‘Banks Got Bailed Out, We Got Sold Out,’ was adopted by a lot of people,” Fried said.

While the Republic workers were trying to encourage others to stand up and fight, most of the country remained in shock. But shortly after Serious Materials bought the Republic factory, a group of Connecticut residents boarded a bus headed to prosperous Fairfield, median income over $78,000. They were headed to the home of Douglas L. Poling, executive vice president for energy and infrastructure investments at American International Group (AIG), technically an insurance company, but one with an investment bank grafted on top. This unwieldy beast had insured a slew of bad mortgages via credit-default swaps, which required AIG to pay out if the mortgages went into default. When those bad mortgages failed, so did AIG, and the US government stepped in and bailed it out, to the tune of over $170 billion.⁵

The bailout alone would have made people angry enough. Regular people, many of them suddenly unemployed or facing foreclosure, were already wondering why the big banks merited more than $700 billion and they got nothing. Congress rebelled at the idea that it should hand over that many taxpayer dollars without any strings attached, and made Treasury Secretary Henry Paulson, formerly of Goldman Sachs, go back and revise the main bailout during the last days of his tenure in the job. He promised to use the money to modify mortgages for homeowners facing foreclosure. But when AIG announced that it would be distributing $165 million in bonuses to executives who oversaw the same unit that had made the colossally bad decisions that nearly broke the company, at least one group had had enough.⁶

“I wanted to make T-shirts that said ‘too small to fail,’” remembered Joe Dinkin of the Working Families Party (WFP), a political organization that at the time worked in Connecticut, New York, and Oregon alongside labor and community groups to put working people’s concerns on politicians’ radar. The idea played on the “Too Big to Fail” line already being passed around as justification for the bailouts, meaning that AIG, Bank of America, and other institutions were too systemically important to be allowed to go under.

The WFP decided to put together the daylong bus tour to “show who had actually been hurt by the collapse,” Dinkin said. “It wasn’t the trader who had made $3 million a year for the last five years; it was actually the people who had been foreclosed, the people who had lost their low-wage jobs, the people whose employers had gotten rid of their health-care coverage.” Having chartered the bus, WFP gathered people like Asaad Jackson, a music teacher from Hartford who was paying down medical debt; Mary Huguley, a pastor whose sister-in-law was facing foreclosure; and Mark Dziubek, a steelworker who’d lost his job at a Bristol factory. The tour, nicknamed “Lifestyles of the Rich and Shameless,” was eye-opening for the participants. “It’s like comparing a rosy red apple to burnt toast, and that’s not even the best metaphor,” Jackson said of the difference between his neighborhood and that of AIG’s Douglas Poling.

The WFP tour seemed to fit a niche that the media had been looking to fill. The press response, at least at first, was massive. Dinkin remembered, “People were portraying us like we were going to be there with flaming pitchforks.”

There were no pitchforks on the day of the bus tour, March 21, 2009. In Fairfield, the participants climbed down from the bus and, backed by about fifty reporters, approached Poling’s home. The single largest bonus check, a full $6.4 million, according to reports, had gone to Poling, which the company’s government-appointed chairman justified by writing, “We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses—which are now being operated principally on behalf of American taxpayers—if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”⁷

Intent on inviting the wealthy executive to come visit their neighborhoods, the protesters were greeted by a private security guard instead. Jeff Meyer, a local dog-walker, stopped to join them. “Because the American taxpayer now owns 80 percent of AIG, they should have full access to anything and everything they own, including their country club memberships, their recreation facilities, their built-in swimming pools, but we’ll do it on a schedule,” he said. “America has stopped being a country that cares about its people. It’s all about greed.”⁸

At the time, the WFP’s goal was fairly simple and localized, though it seemed to tap into something bigger. The organization aimed to draw attention to the budget struggle in Hartford and prevent cuts from going through that would hurt people like the ones who participated in the tour. And on that level, they were modestly successful: the Republican governor of Connecticut actually approved a small tax increase on high earners to make up for the revenue lost to the recession. “In our minds the small-bore goal was not to indict the system, though we thought the obvious screwed-up nature of the system was a pretty good hook,” Dinkin said.

But the national press did not lavish attention on the Working Families tour or the Republic Windows and Doors because of severance checks of $7,000 per worker or the Connecticut budget wars. Reporters came because the crisis that was rocking the nation was unlike anything Americans had experienced before, and it was still unclear how the public was going to react to it. They came because if any moment seemed to call for people in the streets, it was this one.

Despite the WFP’s attempts to be polite during the bus tour, AIG executives reacted as though they were being hunted by howling mobs. One, speaking anonymously, compared the protests to McCarthyism; AIG’s CEO later argued that protests were “intended to stir public anger, to get everybody out there with their pitch forks and their hangman nooses, and all that—sort of like what we did in the Deep South [decades ago]. And I think it was just as bad and just as wrong.” Private security companies reported a boom in the executive-protection business. Executives were going to react as though they were under assault no matter how polite the protesters were, but maybe something rowdy was exactly what the rest of the country was looking for.⁹

Most existing political organizations, particularly those aligned with the new president, seemed to be waiting for elected officials to take the lead, and they didn’t appear to want to get rowdy. George Goehl, executive director of National People’s Action (NPA), a coalition of community groups that at the time of the recession was concentrated mostly in the Midwest, said that one of NPA’s goals was to produce public images of unrest, but he felt that the response did not live up to the goal. “The financial crisis was incredibly painful and hurtful for most Americans and, really dramatically, for certain communities. And we did not respond as a movement in the way that we could have and should have. At some level, capitalism was against the ropes gasping for air for a second, and we were working on health-care reform.”

There was, in his view and that of longtime labor organizer Stephen Lerner, a failure by the Democratic Party and its allies—the ones now in power in Washington—to pivot away from the plan formed on the campaign trail and understand the fundamentally different moment over which they found themselves presiding. The organizations that had a history of making trouble specifically for the financial industry were in a weak position, the groups that had formed in the Bush era to protest the wars were unprepared for a massive economic meltdown, and the labor movement was focused on supporting the Obama administration’s priorities. “We kind of watched for a minute and it was like, ‘Wow. There is nobody in the streets,’” Goehl said. “‘This is nuts.’”

THE CRISIS THAT RIPPLED ACROSS THE WORLD IN 2008 LEFT THE United States mostly in shock. It rattled presidential candidates and pundits alike, fundamentally changing the political debate as the election rolled toward its close. Alexis Goldstein, working at Merrill Lynch at the time, remembered executives coming down to the trading floor, staring at a sort of market scoreboard that hung there, arms folded, watching the numbers fall. “There was definitely a sense that the market had imploded,” she said. “Everything spread to every market. There was absolutely no confidence that other banks were solvent, so it didn’t matter that ‘Oh, it is mortgage backed securities that are worthless.’ You didn’t know if the bank was going to be around tomorrow, so why would you trade with another bank?”

It still seems, as financial journalist Moe Tkacik wrote in 2010, that the story of 2008 is too big to tell, which goes some way toward explaining the fragmented nature of the immediate response. Most accounts get at part of it—at the bursting of a housing bubble filled with the hot air of speculators packaging and reselling mortgages into securities overrated by ratings agencies that were paid by the banks that hired them; at the fraud that happened at bank after bank in the rush to issue a mortgage to everyone who could afford one, and plenty of people who couldn’t; at the predatory practices that shoved black and Latino homebuyers into “subprime” mortgages with higher interest rates, even if they qualified for a more traditional “prime” mortgage. There are stories of the collapse of investment firm Lehman Brothers and stories of the rescue of Bear Stearns or Washington Mutual or Countrywide, making the too-big-to-fail banks even bigger and less likely to be allowed to fail. There are stories of the growing inequality in the country, the concentration of wealth in the hands of a small number of the ultra-wealthy, while real wages stagnated and fell, union membership declined, and entire companies decamped for other shores; and stories of how working people compensated for those falling wages with debt, using their homes as credit cards when actual credit cards wouldn’t cut it, and how this was the last straw that made the whole broken edifice tumble down when those homes lost value, even the bad jobs disappeared, and we had no way to spend ourselves out of economic stagnation.¹⁰

What most of those stories leave out is how it felt in those moments in 2008 and 2009, when even the bankers were afraid their banks were about to be nationalized, and when the treasury secretary and Federal Reserve chairman shifted from their reassuring coos about a small recession to increasingly shrill warnings of imminent economic collapse. We were teetering on the brink of something that most people in the United States had a hard time imagining. As it happened, we remained on that brink, never quite crossing the line into a moment where the buses stopped running or the grocery-store shelves were empty. But it can be hard to remember that it felt like that moment was on its way. All we can do is rub our eyes, look around at the wreckage, and think about what has changed.

And much has changed. The biggest banks got not only the $700 billion authorized by Congress in the last days of the Bush administration, but also trillions—with a T—more from the Federal Reserve, an amount that equaled, according to financial journalists at Bloomberg, “more than half the value of everything produced in the U.S. that year.” Economist Dean Baker argued that putting the Troubled Asset Relief Program up for a vote at all was simply “a way to get Congress’s fingerprints on the policy of subsidizing the banks,” to make it look like the giant safety net of taxpayer cash strung below giant multinational finance firms was democratically created.¹¹

The “bailout” for the nonfinancial sector—leaving aside the bailout of the auto industry, which was mostly notable for the amount of strings attached to it, unlike the money handed to the banks—was the American Recovery and Reinvestment Act (ARRA), a stimulus bill that was more than half tax cuts and that may have been the kiss of death to bipartisanship in the US Congress. It totaled $787 billion when it was passed in February 2009, but many of its parts wouldn’t take effect for years. That was not enough to make up for what Baker calculated would be a shortfall in annual demand more in the neighborhood of $1.3 trillion in 2009 and 2010.¹²

Some 8.7 million jobs were lost between the start of the recession in December 2007 and early 2010. The previous record had been 4.3 million lost at the end of World War II. And, as the protesters in Connecticut feared, cities slashed budgets, cutting public services to make up the shortfall in their finances.¹³

Yet much remains the same. Not a single banker went to jail for the ritualized fraud that had created the crisis. No major financial firm was forced to suffer a cut in the value of its assets. That there were effectively no consequences for these firms, largely because they were described as systemically important, simply encourages more risk-taking, with the expectation that they will be bailed out again. In fact, a 2012 analysis actually quantified the value to the biggest banks on the assumption that taxpayers will foot the bill for their crises. The subsidy provided by that assumption is worth about $76 billion a year to the biggest banks—more than the federal government spends on education.¹⁴

The financial sector had grown exponentially in the decades leading up to the crisis—to the point where it accounted for about 40 percent of all corporate profits in the early 2000s, and rebounded from the crash to around 30 percent. And yet it was not very good at doing what it was supposed to do, which is to direct capital toward the best possible investments. Stock trading had little to do with raising money to keep businesses flowing, and more to do with fattening the pockets of the already-wealthy at the expense of the rest of us. Keeping the stock price of a company high was more important to the people who ran it than keeping its factories producing or its workforce paid. A J. P. Morgan executive admitted in a 2011 letter to clients that “reductions in wages and benefits explain[ed] the majority” of the increase in profits.¹⁵

What Wall Street was very good at was concentrating wealth. Those laid-off workers, or the ones who kept their jobs but found their wages shrinking, had no choice but to rely on credit as a substitute for that lost income—credit, of course, lent from the very same banks, whether that be a shiny gold credit card with “CHASE” across the top or a home equity line of credit, a second mortgage mining your home for cash. Wall Street began to make more of its money from repackaging this debt into “innovative” securities for resale than it did from making loans the old-fashioned way. As the rich got richer, they needed outlets for their investments; as the members of the working class got poorer, they needed money, which they got not in increasing wages for their increasing productivity, but in loans. Growing inequality wasn’t a side effect—it was the main effect.¹⁶

The complexity and power of Wall Street served as one more barrier to protest for working people. As financial observer Doug Henwood wrote, a sizable amount of the power wielded by the financial sector comes “from the sense of powerless awe [it inspires] among non-initiates.” Those bonuses being paid to AIG executives who had just participated in a massive crash, and the inability of the banks to fire the people whose actions had led to the problem in the first place, were justified because, bankers said, no one else was qualified to un-create the complicated web of securities they’d created. The rest of us, again, simply could not possibly understand these “toxic” financial products. We could not even understand why these things had been created in the first place—the whole house of cards was meant to hedge against loss, to de-riskify risk, and it had simply increased risk for the rest of us.¹⁷

Just as the TARP vote worked to get Congress’s imprimatur on public bailouts for the banks in 2008, the public’s participation in the stock market gave ideological cover to whatever the stock market did: if “the people” supported it, it must be democratic and just. Yet the public’s involvement with Wall Street, while it did grow, has always been overstated: stock ownership is concentrated at the top, with 81 percent of stocks owned by the top 10 percent, and 38 percent of stocks owned by the top 1 percent. Half of all households own no stock whatsoever. Mostly, their entanglement with finance is through debt.¹⁸

Sometime during the crisis, Goldstein remembered asking her boss, “How will the public ever forgive us?” His response surprised her. “He was like, ‘The public is going to forget and then everything is going to go back to normal. The public forgot after the long-term capital management hedge funds imploded and the banks bailed them out. They forgot after the savings and loan crisis. It is going to be a little rocky for a while, but don’t worry about it. Everything will go back to normal.’”

Wall Street’s crisis was not simply adjacent to the economic system we live under, but a crisis of capitalism itself. We had been told that deregulating markets would allow markets to work more perfectly, that it would result in better allocation of capital to businesses that would then create jobs for the rest of us, yet the opposite had happened. Since the late 1980s and the collapse of the Soviet Union, capitalism had been triumphant, its cheerleaders sure they had prevailed because their system was just and right—and besides, it was the only option. British writer Mark Fisher called this attitude “capitalist realism”; it was the sense that it was now impossible even to imagine an alternative.¹⁹

And yet in the days of the crisis, even capitalism’s biggest boosters admitted that it was in danger. Judge, legal scholar, and market devotee Richard Posner titled his book A Failure of Capitalism; financial journalist David Faber subtitled his How Wall Street’s Greed and Stupidity Brought Capitalism to Its Knees. No less august a publication than The Economist ran a story called “Capitalism at Bay.” These prominent voices and so many others discussing capitalism’s flaws got people talking about the system itself, whether it would last, and whether it should. Capitalism had become visible as a manmade system, something that could have an end, something that in fact seemed to have self-destructed.²⁰

A recession was one thing; a crisis that rattled the entire economic system was something very different. The story we’d been told about capitalism triumphant, democratic, and practical was obviously untrue, but political and economic elites seemed to simply have no answers. Capitalist realism was over. The question now was what would happen next.

“THE TEAPOT STARTED BOILING UNDER THE BUSH ADMINISTRATION” for Debbie Dooley, a lifelong conservative and resident of Atlanta, Georgia. “I just felt like the Republican Party lost its way and I had major issues with some of Bush’s big government policy. Especially the Wall Street bailout. The Tea Party actually started under the Bush administration, we just didn’t call it a Tea Party.”

But on February 19, 2009, a commentator on CNBC, NBC’s business-oriented cable channel, reporting from the floor of the Chicago Board of Trade, gave Dooley and people like her something to rally around. Rick Santelli, dressed in a suit and yellow tie with traders bustling on all sides of him, ranted about the government “subsidiz[ing] the losers’ mortgages,” to applause from the traders. “This is America!” he shouted, turning to the traders, who all booed. And then he made the call heard round the country: “We’re thinking of having a Chicago Tea Party in July. All you capitalists that want to show up to Lake Michigan, I’m going to start organizing. . . . We’re going to be dumping in some derivative securities, what do you think about that?”²¹

Santelli was responding to the demand for write-downs of mortgages that were “underwater” after the drop in housing values brought on by the crisis; “underwater” mortgages were ones where the homeowner owed more on their mortgage than the house was then worth. But beyond that, he was calling for a rebellion in defense of capitalism, in defense of the idea that the winners and losers had somehow earned what they had. His call resonated with Dooley. “We were still outraged over the Wall Street bailout and here come more bailouts,” she said. “I heard his rant and I said ‘We are going to hold a Tea Party.’”

She was one of twenty-two on the first call to plan for the Tea Party actions that followed. Word of Santelli’s rant and the Tea Party idea spread through the social networking site Twitter and through conservative blogs. Loose networks formed around Twitter hashtags. The first round of Tea Party events came on February 27, 2009, but the one that stood out to Debbie Dooley was in Atlanta on Tax Day, April 15, 2009. “We had twenty thousand people,” she said. “We had [Fox News host] Sean Hannity broadcast there.”²²

Though Fox’s competitor, CNBC, had launched the idea of the Tea Party, conservative Fox hosts like Hannity and Glenn Beck quickly jumped into the fray, publicizing Tea Party events and even hosting their own. Dooley helped to plan a march on Washington sponsored by Beck on September 12, 2009, connected to Beck’s “9/12 Project,” which aimed to reclaim the sense of unity Americans felt after the attacks of September 11, 2001. “When I flew into Reagan National the day before, I was overwhelmed,” Dooley said. “You had people wearing Tea Party T-shirts and Tea Party flags that were getting off of planes, unfurling their flags, from all over the United States.”