In the last few decades, the concentration of income in the United States, Britain and Canada has reached levels not seen since the late 1920s. Such extreme income concentration created a dynamic that led to the disastrous Wall Street crash in 2008 - just as it did in 1929.
Both books highlight eerie parallels between the financial crashes of 1929 and 2008. In The Trouble With Billionaires, McQuaig and Brooks trace the roots of the earlier crash to a 1911 meeting at the White House between then-president William Howard Taft and representatives of two of America’s most powerful capitalists, John D. Rockefeller and J. P. Morgan. Banks controlled by these tycoons had set up affiliates to trade stocks and bonds in violation of U.S. law[/b]. Taft ended up overruling his solicitor general, who wanted to halt this practice.
That was followed in the 1920s by massive tax cuts for the wealthy under successive Republican administrations, which resulted in a torrent of money flowing into the stock market. Meanwhile, mortgage debt in the U.S. tripled between 1920 and 1929, before the financial bubble finally burst.
This cycle was repeated after 1980 in Canada and the United States, as a result of intense lobbying by the financial-services sector on both sides of the border. Walls were broken down between banks, insurance companies, and securities dealers. In recent years, Wall Street banks began bundling what were to become known as toxic mortgages, which were sold as securities to unsuspecting investors. A clever hedge-fund manager, John Paulson, took advantage of the situation and generated a $3.7-billion income in 2007 by speculating that the housing market would collapse. The Trouble With Billionaires reveals that another hedge-fund manager, David Tepper, collected $4 billion in 2009 on bets that the U.S. government would rescue the banks.
“One of the reasons they [politicians] haven’t been able to get proper reregulation through is because the financial elite on Wall Street remains absolutely dominant,” McQuaig explained to the Straight.
Former president Franklin Delano Roosevelt’s administration strengthened regulation and increased taxes on the rich in the 1930s, but President Barack Obama has not been nearly so eager to take such steps. “Consequently, the middle class will not be able to buy nearly enough to keep the economy going,” Reich predicts in his book. “Neither richer Americans nor foreign consumers will fill the gap. All of this will constitute the Great Recession’s aftershock. From it will emerge either a political backlash—against trade, immigration, foreign investment, big business, Wall Street, and government itself—or large-scale reforms that reverse the underlying trend.”
The only thing necessary for the triumph of evil is for good men to do nothing. (Edmund Burke)