2008 Financial Crisis: 10 Shocking Facts That Prove We Didn’t Learn Anything

You know that moment in horror movies when the characters are relaxing after surviving the terrifying psycho or zombie or nice-guy-turned-villain attack, certain that the worst is over?

That’s always the moment when the psycho or zombie or nice-guy-turned-villain comes back from the dead (or in the case of the zombie, comes back from the dead again) for a second attack.

Well, guess what? We could be in such a situation right now, with another looming financial crisis ready to haul us right back into 2008. Check out these 10 shocking facts that proved we learned hardly anything from the 2008 financial crisis:

1. Big banks are bigger than ever 

Big fish big backs

One of the problems in 2008 was the existence of mega-banks that were “too big to fail.” When they did start to fail, it caused chaos and panic in the financial markets.

Yet today, the top six banks account for two-thirds of the banking industry. They have $9.6 trillion in assets, up 37% from five years ago. As Clinton-era Secretary of Labor Robert Reich puts it, “They are still too big to fail, too big to jail, and too big to manage well.”

2. FDIC insurance is a joke

People always tell you that bank accounts are safe because they’re FDIC-insured. What they don’t mention is that the FDIC insurance fund contains just $33 billion in assets, while bank deposits total more than $9 trillion (see point #1). You do the math.

FDIC insured confused

3. Adjustable-rate mortgages are super popular again

In case you’ve forgotten, adjustable-rate mortgages are the loans that played a key part in stoking up the housing bubble leading up to 2008. Well, applications for ARMs recently hit their highest level since – you guessed it – 2008.

Shocked Financial crisis

4. The safe havens still aren’t safe

Money-market funds are supposed to be one of the safest investments out there, but in 2008 the massive Reserve Primary Fund failed, causing panic among investors who thought they’d played it safe.

But the SEC’s attempts to regulate these funds are meeting stiff resistance from the fund industry. The $2.7 trillion in these funds are still uninsured, lightly regulated, and vulnerable to an investor run at the first sign of trouble.

Panic

5. Consumers are in debt

The 2008 financial crisis was basically a debt crisis, and yet five years later, debt levels are soaring again. Consumer credit surged past $3 trillion in 2013, student debt is a record $1 trillion, and even mortgage debt, at $13 trillion, is not far off its crisis-era high of $14.6 trillion. Get that credit card out, and don’t worry about tomorrow!

Consumer debt

6. The government is in debt

Federal government debt is more than $17 trillion and increasing by $2.7 billion every day. It’s now larger than the economy itself, with a debt-to-GDP ratio of 106%, up from 64% in 2007. Whichever way you look at it, it’s an accident waiting to happen.

car crash government debt

7. Companies are in debt

Companies aren’t missing out on the borrowing party either – total corporate-bond debt is $6 trillion, up 59% since 2007, and there are more than $2 trillion junk bonds in issuance, up from $1.3 trillion in 2008.

8. Rogue traders are still on the loose

In 2008, one of the problems was that traders made large bets on risky investments without management approval. Well, it’s still happening. JP Morgan lost $6 billion last year on derivatives bets, which the company management didn’t have a clue about.

Sad financial crisis 2008

9. Derivatives bets are 10 times the size of the world economy

Yes, you read that right. The notional amount of outstanding derivatives contracts hit $700 trillion in November, about ten times the size of the entire world economy.

Last time around, derivatives’ complexity and lack of regulation allowed traders to magnify the level of risk from outstanding mortgages. Now, they’re still lightly regulated, they’re still complex and risky, and they’re being used more than ever.

Derivatives financial crisis 2008

10. Wall Street still fights financial reform

Despite benefiting from billions of taxpayer dollars in the ‘bailout bill’ of 2008, the banking industry has fought hard and fought dirty against any effort to regulate it. Check out this Rolling Stone article for a blow-by-blow account of how Wall Street has watered down financial reform laws by lobbying, threats, lawsuits and a whole lot more. Soon there’ll be so many loopholes that bankers will once again be free to party like it’s 2005.

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One response to “2008 Financial Crisis: 10 Shocking Facts That Prove We Didn’t Learn Anything”

  1. […] Mason mutual fund famously beat the market for 15 straight years, before coming seriously unstuck in the financial crisis of 2008. His stock-picking prowess started at 16, when he took $75 he’d earned from umpiring baseball […]