Five years after the financial fall

posted at 11:01 am on September 15, 2013 by Jazz Shaw

The Sunday Shows were all doing a rewind on the financial crisis and the banking meltdown today, being the five year “anniversary” of the crisis. (At least if you measure it from the day that Lehman Brothers imploded.) The big question on everybody’s lips seems to be less concerned with how well the “recovery” has been going, and much more with asking, could it happen again? Michael Hiltzik at the LA Times finds two people with very different answers.

You can conclude that we’ve pretty much eradicated the risk of another such crisis. That’s the bankers’ viewpoint. Here’s how Morgan Stanley Chief Executive James Gorman put it in an interview with Charlie Rose earlier this month: “The probability of it happening again in our lifetime is as close to zero as I could imagine.”

So… I guess everything’s fine and dandy, then. But you’d be forgiven if you find asking the head of Morgan Stanley this question a bit sketchy, given that he probably has something of a vested interest in supporting the system. The article also digs up one author with a rather different point of view.

Could it happen again? You bet it can, says Anat Admati, a professor of finance and economics at Stanford and co-author of “The Bankers’ New Clothes,” a book published in February that details the shortcomings of banking regulation today. That’s because big banks are still too deeply hooked on borrowing and on making deals in shadow markets that are almost impossible for regulators to track.

“Fundamentally not that much has changed,” she says. “There’s still a lot of risk in the opaque markets that we don’t see, still a lot of leverage that we only discover when it’s too late.”

The argument then devolves back into another entrenched debate over Dodd-Frank and the entire approach to government regulation of the banking industry and the risk posed to the nation, if not the world. And that’s something that we’re going to be wrestling with in the upcoming mid-term elections and for many cycles to come after that. Many fiscal conservatives will rightly argue that banking is, at least to some degree, no different than any other industry, and that governmental interference is no solution. First, it distorts the real value and inherent checks and balances of the market. And second, it opens the door to corruption and mischief on a massive scale as Washington engages in the practice of picking winners and losers around the globe. Far better, we have argued, to allow the banks to fail if they perform that badly. The ones who invest wisely and minimize their risks will survive and, in fact, flourish.

But the counterargument is that the banks that fail aren’t going under the waves alone. They have their fingers into every aspect of society around the globe, and when they fall they take a lot of people down with them who might not have had any interest or direct relationship with them. The people pointing this out rush to assert that this is precisely why enhanced government regulation is needed to act as a bulwark against collateral damage to Main Street when Wall Street’s inherent evil brings about their next inevitable downfall.

Are we any better off than we were five years ago? Well… somewhat. That depends who you ask, whether they have a job and how their standard of living is doing compared to 2007. I would say there’s a lot more people who are either doing worse or at least a lot “less better” than they might have without the collapse than those who are truly flourishing. But is more bank regulation the answer? Given the government’s proficiency at regulating everything else they get their tentacles into, that’s a pretty tough sale to make.


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I guess nonpartisan doesn’t have to buy food or fuel living in mommy’s basement.

Rio Linda Refugee on September 15, 2013 at 2:30 PM

ITguy on September 15, 2013 at 2:13 PM

You’re probably right. It must be hard to ignore reality with that much effort for such a prolonged period.

dogsoldier on September 15, 2013 at 2:32 PM

Nonpartisan goes from “just the facts” to “it could have been a lot worse” awfully quickly. Reminds me of “jobs created OR saved” and unicorns.

Ellis on September 15, 2013 at 2:35 PM

wait until the student loan bubble and housing bubble (again) bursts at the same time.

dmacleo on September 15, 2013 at 2:35 PM

Rio Linda Refugee on September 15, 2013 at 2:30 PM

Or look for work. Any moment now they’ll be back telling us they have a phd in something.

dogsoldier on September 15, 2013 at 2:37 PM

Rio Linda Refugee on September 15, 2013 at 2:30 PM

Or look for work. Any moment now they’ll be back telling us they have a phd in something.

dogsoldier on September 15, 2013 at 2:37 PM

Up here in Northern New England, “phd” means “piled high and deep.” And that does not refer to snow.

Del Dolemonte on September 15, 2013 at 3:09 PM

It wouldn’t surprise me if “nonpartisan” is connected to OFA (formerly the “Obama For America” Obama campaign, now relabeled as “Organizing For Action”).

ITguy on September 15, 2013 at 2:13 PM

I think most of our trolls are OFA guys. When one of them gets banned, they just break out another account they have stacked up.

I’d actually like to see Ed and Allah go on a troll hunt. It would be fun to see how many accounts they have in ‘storage’ before they run out.

Or, we could have occasional online polls and let the readership vote on which troll to kick off the HotAir island.

trigon on September 15, 2013 at 3:19 PM

nonpartisan on September 15, 2013 at 11:19 AM

Goebbels loves fools like you.

Schadenfreude on September 15, 2013 at 3:22 PM

42 months of growth

nonpartisan on September 15, 2013 at 11:19 AM

LOL. Having the feral government deficit spend over 8% of GDP to then cheer about “growth” of less than 2% is beyond a joke. That doesn’t even begin to take into account the liquidity (read “printed money”) that the the Fed has been dumping into the financial system at the same time.

Growth? ROFLMAO.

And we won’t even talk about the hysterical interest rates (lowest in history) that are skewing the figures as the debt service is being kept unnaturally low (as the Fed is the one buying all the bonds, on top of that), which means that the deficit spending is even that much more, as those bills will come due in the near future.

Man, you are one dumb despicable, lying scumbag. Did you grow up in Jakarta eating dogs? Just wondering.

ThePrimordialOrderedPair on September 15, 2013 at 3:23 PM

nonpartisan on September 15, 2013 at 11:38 AM

You and facts should never be used in the same sentence.

Schadenfreude on September 15, 2013 at 3:24 PM

I think most of our trolls are OFA guys. When one of them gets banned, they just break out another account they have stacked up.

I’d actually like to see Ed and Allah go on a troll hunt. It would be fun to see how many accounts they have in ‘storage’ before they run out.

trigon on September 15, 2013 at 3:19 PM

Does calling out Allahpundit as a Carl Rove clone count as ‘trolling’?

Freddy on September 15, 2013 at 3:25 PM

I think most of our trolls are OFA guys. When one of them gets banned, they just break out another account they have stacked up.

trigon on September 15, 2013 at 3:19 PM

I fondly call some of them Sleeper Cells, because that’s what they do. Just like their heroes in AQ.

We have a real live one this afternoon over in the NFL thread. Great entertainment.

Del Dolemonte on September 15, 2013 at 3:31 PM

What, you really thought that money tied up in your retirement fund was YOURS? Come on, it belongs to the People.

Bishop on September 15, 2013 at 12:27 PM

Poland already grabbed everything they could under the guise of offering a protected rate of return for the money they stole.

Johnnyreb on September 15, 2013 at 3:36 PM

Del Dolemonte on September 15, 2013 at 3:31 PM

I think they keep them around to increase the comment counts. They’re pretty useless, otherwise.

trigon on September 15, 2013 at 3:56 PM

Pardon this long post… But it seems relevant to this thread, at least to me:
……………………………………………
I had to make a road trip to Flagstaff, Arizona last week.
Much of my route paralleled one of the major East-west railway lines that cuts across the middle of the nation.

While the following seems to be about railroads, it is really about the American economy:
……………………
While on the road trip, I had the opportunity to watch about 50 + trains go by. I was a bit surprised at how many trains were running, One place I stopped, out in the middle of nowhere, for about an hour, right by the tracks, there was one train going by every 5 minutes. I was shocked at how many there were; thinking “Maybe I’m wrong, and the economy is booming.”

But after a while, it dawned on me that there was a big difference between the trains I was seeing this week, and the ones I saw in my travels from childhood, through when I was doing a lot of traveling in the late 90s to 2003.

Back then:
I would see trainloads of timber, of finished lumber, going in both directions,
I’d see train loads of huge steel beams going from the mills in Pennsylvania, Indiana, Ohio etc. to build skyscrapers, factories and bridges etc. in a booming West.
I’d see trains hauling tanker cars of oil, compressed natural gas, propane etc., and chemicals for manufacturing processes. *
I’d see mile long trains hauling coal east and west, to fuel power plants, mills and foundries.
I’d see the occasional train hauling cars full of copper, aluminum, or uranium concentrates , or some other geologic resource being hauled to a refinery. or the semi-refined bars of ‘pig iron’ headed to the foundries and steel mills.
I’d see west-bound trains hauling thousands of automobiles for the folks in California, In booming Phoenix, etc.
I’d see trains going both ways hauling huge pieces of manufacturing equipment to build new factories, or huge pieces of mining equipment.
I’d see train cars loaded with apples, cabbages, lettuce, potatoes, and even peanuts headed for market, or cotton headed for the textile mills

*(OK, more pipelines explains why the railroads aren’t hauling oil and natural gas anymore, but doesn’t explain why I saw no tanker or hopper cars full of chemicals and the like being moved. )

NOW:
EVERY train I saw was just hauling shipping containers with mostly Chinese names painted on them and semi-truck trailers, which I think I safely can assume were mostly full of Chinese made video games, TVs, toys, and maybe some clothes and household goods made in China, Indonesia, the Philippines, or other foreign countries..

I’m sort of thinking of going to a nearby North-South railroad line soon to see if things are different in those directions, to see if anything is actually providing motive power for our economic engine.

It made me sad when I realized what I was seeing, as compared to what I saw before.

Any of you folks who live in other places where you see freight trains… Do you see anything that seems like there is an actual economy operating here in the US?

LegendHasIt on September 15, 2013 at 4:05 PM

Up here in Northern New England, “phd” means “piled high and deep.” And that does not refer to snow.

Del Dolemonte on September 15, 2013 at 3:09 PM

Yup. Usually from horses or bulls. I grew up on a farm here in cow Hampsha as the Mass foreigners used to say. Like that was supposed to be an insult or something.

dogsoldier on September 15, 2013 at 4:08 PM

Any of you folks who live in other places where you see freight trains… Do you see anything that seems like there is an actual economy operating here in the US?

LegendHasIt on September 15, 2013 at 4:05 PM

Not much of one. Check out the restaurant stats over at ZeroHedge.

I use the search window. Dining out has decreased dramatically. Due to inflation eating out is OMG expensive.

dogsoldier on September 15, 2013 at 4:12 PM

….Due to inflation eating out is OMG expensive.
dogsoldier on September 15, 2013 at 4:12 PM

Yeah, one of the things I noticed on my trip, is that the stuff on the “Dollar Menu” at the ‘Burger Prince’ (Where I hadn’t stopped for a year or so), is now $1.49.

Hey, Can you still get a 39 cent bean burrito at Taco Hell, for 39 cents?

LegendHasIt on September 15, 2013 at 4:21 PM

Any of you folks who live in other places where you see freight trains… Do you see anything that seems like there is an actual economy operating here in the US?

LegendHasIt on September 15, 2013 at 4:05 PM

U.S. Freight Railroad Industry Snapshot

Biggest cargo these days? Coal. Chemicals second.

The link has a feature so you can click on individual states. The Arizona results (where you were) are interesting.

Del Dolemonte on September 15, 2013 at 4:40 PM

I was told there would be no math, and that Obama would fix everything.

Moesart on September 15, 2013 at 4:47 PM

nonpartisan on September 15, 2013 at 11:19 AM

Goebbels loves fools like you.

Schadenfreude on September 15, 2013 at 3:22 PM

I’ve heard he likes Gerbils, so there you go.

slickwillie2001 on September 15, 2013 at 4:49 PM

Thanks Del. Maybe it was merchandise week on the railroads, rather than coal week…
I was surprised at the lack of coal… Because I was only about 50- 150 miles south of some of the biggest coal mines in the country, and right along the route were several big coal powered generating plants…

LegendHasIt on September 15, 2013 at 5:00 PM

If the news wasn’t already bad enough, the weak candidate for FRBoG Chairman, Larry Summers, has withdrawn, leaving the way clear for every feminist inflation fan’s fave rave, Janet Yellen, who will probably push to pump more paper into the system. Gold is suddenly looking good again.

Adjoran on September 15, 2013 at 5:26 PM

The banking system is the mechanism by which the government debt spends, and that is why banks and bankers enjoy their elevated status position. You will not get regulatory control of the banks until you get a handle on debt spending. They are too intertwined.

DFCtomm on September 15, 2013 at 5:26 PM

Pray that Obama’s notorious distaste for wymyn and his fanatic desire to save face (Yellen would be seen as Obama settling for his second choice) lead him to Don Kohn, an old Greenspan hand who is probably the most conservative candidate Obama might consider.

Adjoran on September 15, 2013 at 5:32 PM

I like how no one could actually refute any of the points I made…since they’re FACTS!

keep spinning how we’re not better off than we were 5 yrs ago though…

nonpartisan on September 15, 2013 at 11:38 AM

The FED is monetizing 85 billion a month. That buys a lot of everything you listed. That’s the fact you omitted.

DFCtomm on September 15, 2013 at 5:33 PM

nonpartisan

Let me break it to you gently. Some day your parents will be dead. You won’t be able to pay the taxes or upkeep on their house which you presently squat in. You’re wasting your youth living in a fantasy world where you gladly grab at all the fruits of the free market, while sneering at the people who make it possible. You’ll have no real job. No marketable skills. No money saved. At that point reality will hit you like the 8:15 train you don’t take to work. You’ll undoubtedly curse the Gods for your bad fortune, and take the coward’s way out. Peace out, fool.

teacherman on September 15, 2013 at 6:47 PM

Five years ago, I could say that at no point in my life had I ever wondered if I would be able to afford groceries. Now I have–and there’s no end in sight to that wondering for the foreseeable future. (I’m grateful beyond words to say it hasn’t advanced beyond wondering to actually not being able to afford food, but still…it wouldn’t take much.)

Five years ago, I set the thermostat on what was comfortable. Now I set it, depending on the season, on what will prevent hypothermia or heatstroke.

I could go on, but I’m sure the point is already clear: Put me in the five-years-ago-were-way-way-way-better-than-now column.

butterflies and puppies on September 15, 2013 at 6:49 PM

Legend and Del, very interesting reports/stats. Thank you.

Schadenfreude on September 15, 2013 at 7:09 PM

Thanks Del. Maybe it was merchandise week on the railroads, rather than coal week…
I was surprised at the lack of coal… Because I was only about 50- 150 miles south of some of the biggest coal mines in the country, and right along the route were several big coal powered generating plants…

LegendHasIt on September 15, 2013 at 5:00 PM

Here in New Hampshire we have some lively (to say the least!) freight railroad operations.

1. Way up north, we have CN (Canadian). Runs from Canada thru Vermont thru northern NH to Maine. Did you know that CN recently bought the Illinois Central?

2. Farther south, we have Pan Am Railways (yes, Pan Am!). One of the remaining fragments of a once-proud international airline. Pan Am Railways has several freight routes in southern NH and nearby states. It’s owned by insane billionaire Timothy Mellon.

What was left of the airline (which by then was a regional) finally kicked the bucket several years ago, though as recently as last fall I saw one of their commuter planes at a NH airport.

3. Then there is New England Southern. They run right up the middle of the state (the State of NH now owns the railroad line itself however) but only run 1 freight train a month north of the state capitol. That is slurry for a single manufacturer.

The rest of the time they run tourist railroad trains along the route. Giving the obesity rates of Americans these days, those could also be called freight trains!

Del Dolemonte on September 15, 2013 at 7:34 PM

I’ve heard he likes Gerbils, so there you go.

slickwillie2001 on September 15, 2013 at 4:49 PM

(:->)
ok…that was funny!

KOOLAID2 on September 15, 2013 at 7:45 PM

Are we any better off than we were five years ago? Well… somewhat

That’s a joke, right Jazz???

Let’s see.
1. Our national debt went from 10 trillion to 17 trillion
2. Our manufacturing base has continued to erode
3. We are soon to lose our Reserve Currency status as Bernanke has flooded the world with quantitative easing
4. Deflation abounds, in the size and quality of anything you can buy (who ever heard of an 11 oz can soda)
5. Income has stagnated
6. The Gov’t has created a new massively overpriced entitlement
7. Our fertility rate is cratering as people can’t afford kids.

And you ask if we are better off? Anyone living on a credit card feels like it is great, until the bill comes due.

WryTrvllr on September 15, 2013 at 11:24 PM

we could’ve ended up with hoovervilles across the country had the administration not acted quickly

nonpartisan on September 15, 2013 at 11:48 AM

You must mean the Bush administration, right?

WryTrvllr on September 15, 2013 at 11:51 PM

We saw our financial advisor last week for a semiannual meeting and he said things were going to be very good next year. The dow is going to go up to 1850 or 1900. He didn’t say how this was going to happen and that’s the part that keeps me up at night. My son an his girlfriend are losing hours at work and don’t know why. I tell them it’s because of Ocare and they’ll soon lose the insurance coverage they have, too, since it’ll be cheaper for the company to dump that benefit. I think they’re getting the message. Obayme and the left is the reason Putin was mostly correct when he said we aren’t so exceptional. We started losing that which was built into our constitution with every govt regulation, law, tax, fee, and mandate coming out of DC. Not much left in the tank at this point.
Our trains carry coal westward and Chinese containers eastward. At least the crews have a job.

Kissmygrits on September 16, 2013 at 8:44 AM

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