I’ve listened to many people tell me that the system is hopelessly rigged against the working class, so they don’t even bother to participate. The argument they make usually describes what happened during and following the 2008 financial crisis. That is, the largest banks received massive bailouts with very easy repayment terms. Not to mention, these same banks have also benefited tremendously from nearly free consumer deposits, as the Federal Funds rate still hovers near zero. Other large corporations, including insurance giants and industrials, also received enormous cash infusions the likes of which had never been seen before. But, individual homeowners did not receive similar bailouts to keep them in their overpriced homes. Additionally, the Federal Reserve invoked quantitative easing policies, which involve buying mortgage-backed securities and Treasury notes, to increase the prices of those assets. But, quantitative easing can cause high inflation for the general population, and there’s no guarantee that the banks will loan out the excess funds. Naturally, this combination of corporate bailouts and quantitative easing have left many people furious. After all, these funds were their tax dollars being used to keep wealthy bankers and corporations afloat instead of being spent on more worthwhile projects.
However, when you scratch below the surface, these issues become far more complex. The expansive corporations that received bailout money employ a very large number of people. Large companies also buy goods and services from smaller companies, thereby flowing capital throughout the economy. On top of this, everyone benefits from a correctly functioning financial system. Most businesses operate off of lines of credit supplied by banks. These credit lines allow the companies to meet payroll and buy the goods necessary to produce whatever they make before they’ve been paid by their customers. Continue reading