After The Fall

The critical lessons we failed to learn from the 2008 financial crisis

- Robert Reich 

TEN YEARS AGO, AFTER MAKING piles of cash gambling with other people’s money, Wall Street nearly imploded, and the outgoing George W. Bush and incoming Obama administrations bailed out the bankers.

America should have learned three big lessons from the crisis. We didn’t, to our continuing peril.

First lesson: Banking is a risky business with huge upsides for the few who gamble in it, but even bigger downsides for the many when those bets go bad. That means that safeguards are necessary.

The protections created after Wall Street’s 1929 crash worked for over four decades. They made banking boring. But starting in the 1980s, a number of safeguards were watered down or repealed because of Wall Street’s increasing thirst for profits and its growing political clout. As politicians from both parties grew dependent on the Street for campaign funding, the rush to deregulate turned into a stampede. It began in 1982, when Congress and the Reagan administration deregulated savings and loan associations—allowing them to engage in risky commercial lending, while continuing to guarantee them against major losses. Not surprisingly, the banks got into big trouble, necessitating a taxpayer-funded bailout.