What Did We Learn from The Financial Crisis?
In his book “After the Music Stopped” (The Penguin Press, 2013), Alan S. Blinder attempts to explain the government’s actions during and immediately after the events that brought down the U.S. and global financial systems in 2008, and to answer the quintessential question most of the industry has been asking for the past five years – did we learn anything from this crisis? Although Blinder does a great job outlining the relevant events in chronological order and walking the reader through the domino effect that moved at breakneck speed during those crucial months before and after Lehman’s collapse. Blinder’s Princeton professor side rears its head quite a bit in the book in the form of rates charts, graphs and hypothetical examples designed to illustrate certain points.
One of the most striking points Blinder makes in “After the Music Stopped” is how little knowledge the U.S. population about the major details of the efforts the government took to try and cauterize the bleeding economy. For example, a 2010 CNN poll found that 54% of Americans believed that the Recovery Act – a stimulus package – helped bankers and investors rather than the middle class. In fact, “the stimulus had nothing much to do with the welfare of banks and investors per se.”
Blinder partially attributes this knowledge gap to a lack of communication from the Oval Office to the general public about what was happening to the economy and the measures that were in progress to help right the ship. According to Blinder, the Obama Administration bit off more that it could chew at the onset of the first term, including “stimulate aggregate demand, reform financial regulation, transform health care delivery while extending coverage, devise a new climate/ energy policy,” and the list goes on. This is a perfect example – albeit on a much grander scale – of the importance of prioritizing issues that need attention and communicating the actions being taken to address said issues.
Whether industry participants learned anything from the 2008 crisis still remains to be seen. Although Blinder is positive on the state of the U.S. economic recovery, he is less optimistic about some of the other nations taken down by the crash heard around the world – most specifically, Greece. One thing that Blinder was sure of is that this is not the last bubble we will live through. Therefore he writes that "we need to put in place durable institutional changes that will at least make financial disruptions less damaging the next time the music stops."comments powered by Disqus