The 2007-2009 Financial Crisis
a cautionary tale for the ages
“When the situation was manageable it was neglected,
and now that it is thoroughly out of hand we apply too
late the remedies which then might have effected a cure.
There is nothing new in the story.
It is as old as the Sibylline books. It falls into that long, dismal
catalogue of the fruitlessness of experience and the confirmed
unteachability of mankind. Want of foresight, unwillingness
to act when action would be simple and effective, lack of clear
thinking, confusion of counsel until the emergency comes, until
self-preservation strikes its jarring gong. These are the features
which constitute the endless repetition of history.”
– Winston Churchill –
... the endless repetition of history. Although history is always there for us, patiently waiting to impart its hard-earned knowledge, we often continue to stubbornly disregard it.
It’s fascinating how soon we forget disasters, for example. From botched hurricane relief efforts to wars to financial crises, it seems we have little interest in examining cause and effect – which is unfortunate because that is perhaps the very best way to stop bad history from repeating itself.
In the years leading to the 2007-2009 Financial Crisis, for instance, there was a multitude of events – the savings and loans fiasco, the dot-com bubble burst, the Asian currency crisis, the Russian government bond default, massive accounting scandals, and blatant fraud – that presented alarming cautionary tales.
But the lessons weren’t learned because – miraculously – the fallout from those events had little long-term significance to Americans. Any one of these events should have brought our economy to a screeching halt but we somehow recovered from them virtually unscathed. Yet someday, if we’re not diligent, the music will stop and there won’t be enough chairs.
Throughout the financial crisis, the term moral hazard was widely used in reference to the government “bailing out” the financial industry. Moral hazard is the idea that people take riskier risks if they are not the ones who directly feel the consequences of their actions. How little has changed since 2007 proves that those concerned about moral hazard had a very valid point.
… yet these are lessons we clearly haven’t learned yet. Although, even with the bailouts, the consequences of the 2007-2009 global financial catastrophe were massive, it seems like people started to believe – pretty much the second the crisis was finally in our rearview mirror – that the good times were going to once again roll forever. Laissez les bons temps router!
We're the first to admit that, before the 2007-2009 Financial Crisis, our self-interest had started to overshadow our self-sacrifice. We had become so seduced by the glitter of the American Dream that I lost sight of its glory. But then that wakeup call came. The first few days of the financial crisis felt like the last day of a four-day Vegas trip. You know the one – where you live daring and carefree and throw all caution to the wind… the one where, although you really don’t know what the heck you’re doing, you throw that dice like a high roller and double down and hit 18 like the high-rolling gambler you are. The trip where, on the final morning, you suddenly feel irresponsible and reckless as you mentally calculate the little cash you have left as you fearfully check for a wedding ring.
After a few days, fear quickly turned into anger and frustration because most of us felt blindsided by the financial disappearing acts in the markets. But then, unexpectedly, something else started to tug at our subconscious. Although it would be far easier to ignore the rude intrusion and continue to blame uncontrolled traders and corrupt executives, feelings of regret, responsibility and guilt crept in as we tried to answer a question that in retrospect was as inevitable as it was disturbing:
Why did we allow things to get this out of control?
It would have been painful enough to look at our 401(k) statements if we were unaware that a day of reckoning was coming, but many of us had a gut feeling that a debt far costlier than our Visa bill was about to come due – the nagging sensation that most of us had tilted more toward the glitter than the glory.
We already knew it happened on Wall Street, where a few bad apples show contempt for responsible governance and even the most minimal discipline and compromise morality and ethics for nothing more than quick wealth. We already knew it dominated Congress, where our leaders use our tax dollars as their very own re-election fund, and often sell us out to the highest bidder. But we also knew that the trend extended beyond Washington and Wall Street.
From the edge of the abyss – where an international crisis of confidence crashed into a citizen’s crisis of conscious – it was impossible to ignore in that moment that we all needed to make changes.
But did we? Here’s a fun little story for you.