Don't believe the populist hype

bailout_protests.gi.top.jpgWorkers and union members gather for a rally on Wall Street last April to protest lost jobs and the taxpayer-funded bailout of banks. By Becky Quick, contributor


FORTUNE -- Beware the revisionists. It was bound to happen eventually, but here we are, less than two years after the U.S. faced its worst financial crisis in decades, and a steady stream of politicians routinely take to the airwaves to declare that the government overreacted with the $700 billion TARP plan and ripped off the taxpayer. That the incredible interventions by the Federal Reserve and the Treasury weren't necessary. That we should have taken our lumps and let the chips fall where they may.

Yeah, right. Jimmy Dunne, senior managing principal at investment-banking firm Sandler O'Neill, summed up my feelings perfectly when I asked him recently what he thought of those politicians: "They're idiots," he said.

becky_quick_2010bw.03.jpg

Dunne is one of many who watched the meltdown from a courtside seat. "You had to be at your desk every day, but there was just this feeling of hopelessness, like there was nothing you could do," he says of those dark days in the fall of 2008. "You just had this feeling in your stomach that if the government didn't stand up and say, 'We will be there,' the whole thing would be crumbling down."

Why would things crumble? Because our financial system is one that operates on the idea of faith. Faith that institutions will back their promises, that people will pay their bills. And this nation went through a period where everyone questioned that faith. Institution after institution came right up to the edge of collapse -- and some plunged off: Bear Stearns, IndyMac, Lehman Brothers, Fannie Mae, Freddie Mac, AIG (AIG, Fortune 500), Merrill Lynch, Washington Mutual (WAMUQ), Wachovia. The most frequently asked question on Wall Street back then was: Who's next? And in that environment, everything shuts down.

"It's like going to a party and being told 10 out of the 40 people there have a contagious disease," says Dunne. "You don't know which 10. Are you going to shake anybody's hand?"

That's why the government had to step in and take such extraordinary steps, from backing the credit markets to insuring money market investments to raising the FDIC's deposit insurance to $250,000 per bank account. Combined, those moves helped stop the run on the banks and kept the panic from spreading.

Those who think the financial system's collapse would have hurt only Wall Street fat cats are fools -- or terribly naive. When major companies can't get funding, they can't meet their payroll obligations. Some major companies including a few Dow components -- might have fallen into that camp back in the autumn of 2008 when the credit markets seized up, leaving hundreds of thousands of employees without a paycheck. It would have immediately trickled down to smaller companies across the country.

Unemployment, which is dogging our nation right now with an official rate just under 10%, could have easily risen to 25% and beyond, just like during the Great Depression. Plus, think of the disruption that would have played out if the banks had frozen up. During the height of the crisis, we were joined on the Squawk Box set by a guest host whose firm now manages over $1 trillion in assets. During one commercial break, he confessed that he had recently told his wife to go to the bank and take out as much money as possible, because he wasn't sure the ATMs would be working the next day. In fact, the smartest people I know, the ones with the most intimate knowledge of what was happening in the markets, all thought things were even more dire than government officials were letting on at that point.

The armchair-quarterback lawmakers and candidates who are now second-guessing these moves are dangerous. Not only are they playing on populist anger to advance their own needs (getting elected), but they also threaten to undermine those very necessary and positive steps that were taken by the government during our darkest hours. That, in turn, could prevent future leaders from doing the right thing the next time around. And though Congress was poised to pass a financial regulatory reform bill as Fortune went to press, you can bet that somewhere down the road, there will be a next time.

- Becky Quick is an anchor on CNBC's Squawk Box.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 12:31am ET
Sponsors

Sections

Spencer has been a supporting member of the "Good Morning America" cast for the past three years. More

Obamacare sign ups hit 8 million, though final enrollment remains to be seen. More

Office for iPad move is a symbolic victory for Nadella's Microsoft, but the company is still weighed down by many of the same old issues. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

As Detroit moves closer to reaching a bankruptcy deal, retired civilian workers are poised to be left worse off than firemen and police officers. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.