WASHINGTON— Five years after the worst financial crisis since the Great Depression, former U.S. congressman Barney Frank feels the risks of another calamitous bank failure that could throw the global economy into a downward spiral have diminished. However, although Frank insists the risks have been greatly reduced and that "the economy is better off than it was five years ago for almost everybody,” economists say the U.S. recovery remains mixed.
Expectations of a quick turnaround were misplaced, claim experts such as Robert Bixby of the Concord Coalition.
"It was a major catastrophic bursting of the bubble and that takes a lot longer to recover from."
Former Treasury Secretary Henry Paulson, who helped bail out some of the biggest financial firms in 2008, said that as unpopular as it was, the TARP program, which authorized the government to purchase up to 700 billion dollars of troubled assets, helped prevent a bigger crisis.
"The American people never understood , never understood, we did these [bailouts] to prevent a disaster... Barney and I both understood, we could have had something that rivaled the Great Depression.”
Five years after the onset of the crisis, the biggest banks are once again profitable. U.S. stock prices are 26 percent higher than they were in 2008 and America’s top CEOs are earning more than they did before the crisis.
However, despite good news on Wall Street, unemployment remains high and the median income for Americans is lower than it was before the crisis. The OECD has even said that the United States now has the greatest level of income inequality among developed nations.
Barney Frank feels that this charge is not entirely related to the crisis, and pointed out that America’s high levels of inequality were present before 2008 and that resolving the financial crisis would not necessarily entail also tackling income disparity, stating that the financial legislation that was passed was to “stop bad things from happening,” and that “nothing in there makes good things happen."
Some blame the two sided recovery on dysfunction in Washington. Economist Joe Gagnon of the Peterson Institute said the drawn out budget battle of 2010 and deep government spending cuts enacted by Congress earlier this year insure that the recovery will remain tepid.
Considering future hurdles, Gagnon said, “I think the only thing that could hurt us in the short run would be a catastrophic political impasse in Washington. You know, a government shutdown that would drag on for months."
Another potential wrinkle could come on Wednesday, when the Federal Reserve is expected to announce whether it plans to scale back monetary policies that have kept long term interest rates at record lows.