All the ingredients for another financial meltdown still linger
The real problem, however, is that we haven’t responded to the lessons of five years ago by making substantive changes. Banks that were deemed “too big to fail” by the federal government during the crisis — Bank of America, Citigroup and JPMorgan Chase — remain, well, too big to fail. Wall Street is back to creating synthetic collateralized debt obligations, one of the more pernicious varieties of securities that blew up during the crash. And some consumers can still get a federally guaranteed mortgage with just 3.5% down.
The point is that although the economic conditions for a bubble haven’t yet materialized, the seeds of our destruction are still there, lying dormant. And with the same financial system in place, another crisis essentially is waiting to happen.
There are no simple answers. It will take a complex plan to seriously regulate a system that affects the broader economy in ways that it never has before and is dominated by banks the size of sovereign nations.
These challenges are going to require creative measures and fresh approaches. The organization I work for is funding economic research on ideas and theories that counter the so-called neoclassical views that have long provided the intellectual backbone for our expansionary financial system. I could tick off the names of researchers around the world who are doing important work on financial stability and the way economies behave that could help foster this transformation. But I think even they would admit that it’s not enough.
Lasting change will only come with a new economic mind-set. It will take a monumental shift in the way political leaders, central bankers, business executives and regulators view policy and the world around them.
Unfortunately, no such movement appears on the immediate horizon. So in the meantime, it would be wise to be on the lookout for the warning signs of the next crisis. Heed the lessons of the past. Because by all appearances, those in power haven’t.
ABOUT THE WRITER
Eric J. Weiner is senior editor and director of communications at the Institute for New Economic Thinking and the author of “The Shadow Market.” He wrote this for the Los Angeles Times.
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