Reporting on the 2008 Financial Crisis, and the Next One

Abstract

What follows are the conclusions I reached. Most of them are deeply alarming to me as a journalist and a citizen because what became inescapably clear is that we are still living today with the same global financial system we had on the eve of the 2008 crash – which was so complex and opaque that no one understood it. Worse, I’ve concluded, we don’t understand it now. First, I now realize, in 2008 neither regulators, policymakers, nor leaders had ready access to the information they needed to read the early warning signals of disaster. Most importantly, systemically important financial institutions weren’t obligated to report their level of financial leverage, the illiquidity of their assets, their counterparty risk exposures, or other critical risk data they preferred to remain silent about. Second, I can see now that there were higher levels of dangerous interconnectivity between the most concentrated financial institutions that weren’t visible or understood by anyone involved, including the Federal Reserve, the Treasury, the Securities and Exchange Commission and other regulators, or the institutions they were meant to regulate. Third, I finally understand that, although we are faced today with very nearly the same level of connectivity, no responsible body among the regulators or the regulated is fully able to evaluate developments in the financial system, just as in 2008. We still don’t know who owes what to whom, either inside the United States or between American and international financial counterparties. Moreover, there is no coherent regulatory system in foreign financial capitals that is fully coordinated with the (dangerously fragmented) regulators in the United States.