Call it what you want, the Crisis, the Great Recession. By whatever name, the reckoning that began in earnest late in 2007 marks one of the most significant economic events ever to occur in the United States. Why should you be eager to learn about the crisis? Let’s see what we can come up with.
- We are still living in the long shadow the Great Recession. Sure, the market has recovered, and then some. Economic activity has rebounded as well. But to make even modest economic growth possible the government is supporting the economy with very low interest rates and significant deficit spending. Despite several areas of the economy strengthening, the real unemployment / underemployment rate remains high and there are over 90 million Americans who simply aren’t in the work force.
- The crisis illustrated the failings of many people who didn’t have enough intregrity or character to behave honestly. The classic seven deadly sins are: pride, envy, gluttony, lust, anger, greed and sloth. Several of these can be found among the major culprits of the crisis. Times may change, but people don’t. By learning how this all went down, you will be much better prepared to identify the next crisis as it is shaping up, not after it has already hit.
- We’re still living with the bad actors from the crisis. One would think that after blowing up their corporations while unfairly enriching themselves, or writing academic papers that turned out to be completely wrong, that they would go find a life outside the public eye. But one would be wrong. Remember those deadly sins? One is pride. Some people are so proud that they may be incapable of honestly assessing the havoc they’re wrought. With no one willing to stand up to these people, they just smoothly rotate among positions on the faculties of our most presitigious universities, the highest levels of government, and a corporate Board or two.
- Our biggest banks took irresponsible risks but were not allowed to fail when they suffered losses because they were too important. So, they were bailed out. One straight-forward reform that has been proposed is to break up our biggest banks into smaller, less consequential pieces. But during the crisis, weaker banks were driven into the arms of stronger competitors. Chase bought Bear Stearns and Washington Mutual. Bank of America bought Merrill Lynch and Countrywide Financial. Wells Fargo bought Wachovia. The result? By 2011, the five biggest banks were bigger than ever. Their $8.5 trillion of assets equaled 56% of the U.S. economy. This is up from 43% five years earlier. (BW) Our financial system is now more concentrated than it was before the crisis.
- While Congress did pass the Dodd Frank financial reform bill in 2010, the bill directed agencies of the government, such as the SEC and CFTC, to make certain new rules. These agencies took a while getting these rules written. Now that they’re in place, in comes a Trump administration that may seek to roll them back.