Friday, September 13, 2013

What Has Changed Since the Credit Crisis of 2008?

Most of us - including me - look back at the events of the fall 2008 as period that we hope will never return.

Former Treasury Secretary Hank Paulson has in the media frequently in the past few weeks with his memories of that scary time, and they make interesting reading.

Of course, the most interesting memories will probably come from Ben Bernanke, but these will have to wait until he returns to Princeton.

The sense from most of the articles is much like one feels after barely missing a car crash - huge relief, followed by a sense that we will drive much more carefully in the future.

However, columnist Gillian Tett has a column in this morning's Financial Times suggesting that we have learned little from the events during the fall of 2008.

She lists six ways that our current financial system is just as insane as it was five years ago - perhaps even more so. 

I would suggest you read the whole column if you have time, but here's a quick summary of her six points.  I find it hard to disagree with any of them:
  1.  The big banks are bigger, not smaller;
  2. The shadow banking world is taking over more activity, not less;
  3. The system depends more than ever on investors' faith in central banks;
  4. The rich have become richer;
  5. Financiers have been prosecuted - but not for the credit bubble;
  6. Fannie {Mae} and Freddie {Mac} are alive and well.
http://www.ft.com/intl/cms/s/0/e622fa00-1bbf-11e3-b678-00144feab7de.html?siteedition=intl#axzz2emATlnba

Writing at a time when investor bullish sentiment continues to rise, Ms. Tett piece is a timely reminder that a crisis could return again.