Six years ago this week, Wall Street began imploding with the collapse of Lehman Brothers. The biggest banks started falling like dominoes, taking a big portion of our economy down with them. Ultimately, the 2008 financial crash was the worst since 1929 and the economic wreckage and wealth destruction it caused is the worst since the Great Depression of the 1930s.
While the damage was widespread – costing our economy more than $12.8 trillion – Silicon Valley and the innovation economy paid a heavy price.
Venture capital investments plunged 25% within a year. All told, the crash cost America’s innovation economy $10 billion worth of venture capital in 2009 alone – including a $3 billion hit to Silicon Valley. As a result, investments in biotech companies fell 24%. Electronics fell 37%. Information technology dropped 42%. And investments in software, semiconductors, and telecommunications fell 32%, 49%, and 62% respectively.
The financial and economic crash also caused tax revenues to plummet and spending on social needs to skyrocket. This in turn resulted in massive federal deficits, which forced federal spending cuts for almost everything else, including causing federal funding of research and development to sink to its lowest level in decades.
Many of these losses will never be regained. But if you think it can’t happen again, think again.
Congress did pass a historic Wall Street financial reform law in 2010. But Wall Street’s cash and its army of lawyers and lobbyists have mounted a relentless campaign to block or delay many of the most important provisions. The dangerous too big to fail banks have actually gotten bigger. Not a single Wall Street executive was held accountable for their role in the crash. Wall Street’s profits and bonuses are back, but American families, communities and companies still suffer from the ongoing economic wreckage.
Remarkably, however, those with the greatest stake in these issues — innovators, entrepreneurs and business people — are almost entirely absent from the New York/Washington debates on these key financial and markets issues. Instead, the handful of self-interested too-big-to-fail Wall Street banks and their lobbyists and lawyers monopolize the political, policy, regulatory, legislative and legal debates on these issues. Frankly, these “debates” are really mostly discussions among likeminded people rather than genuine exchanges with opposing views about the merits and the public interest.
The sad truth is that we haven’t done nearly enough to reform the financial system to prevent another cataclysmic crash, end rampant predatory behavior, restore investor confidence and protect taxpayers, companies and the federal treasury.
The financial system and financial markets exist to be the funding mechanism for Silicon Valley innovators and businesses at all stages and of all sizes. Markets are supposed to support the real economy that invents, builds and distributes goods and services which fuel employment, growth and standards of living — improving lives, communities, our country and the world.
It shouldn’t surprise anyone that a handful of the biggest banks will act in their own narrow interests to block efforts designed to rein in their excessive risk taking, which enriches them while endangering everyone else.
That means that real reform will not happen until the people and companies with the most at stake in our economy get actively and consistently involved in these debates and the political process. Otherwise, Wall Street’s New York/Washington alliance will continue to monopolize the policy outcomes – producing results that favor them regardless of the threat they pose to Silicon Valley and the rest of the real economy.
What does that mean? Silicon Valley, at the corporate and executive level, has to commit its influence, credibility and resources to the fight. That can be done individually or, better, by creating or joining alliances and coalitions with others. It means organizing to work the political process in Congress and the White House to reject efforts to weaken the financial reform law. It means pushing back at the derivatives, securities and banking regulators to prevent Wall Street from getting loopholes in the rules they are passing. Importantly, it also means a PR campaign that rebuts the all-too-often one-sided pro-Wall Street reporting on many of these matters.
Unfortunately, what needs to be done isn’t glamorous. It’s digging into the nuts and bolts of DC policymaking. Wall Street didn’t get its power and influence overnight and it didn’t do it by dipping in and out of Washington as issues occasionally flare up. In fact, Wall Street is most effective when public attention is focused elsewhere and no one is watching as it bends policy in its direction, slowly and mostly unseen. Any effective counterbalance must do the same.
It’s been said that democracy belongs to those who show up and speak up. Silicon Valley can’t afford to sit this debate out any longer.