The Committee to Destroy the World

CHAPTER 9 Finance after Armageddon

For many men and women who spent their professional lives on Wall Street, the year 2008 felt like Armageddon. Not only did many of them lose their jobs, but they also lost the wealth and financial security they spent decades accumulating. Regulators and others in the seats of government surely felt as though they were facing the end-of-days when confronted with the death of capital. The global financial system was virtually paralyzed in September and October of 2009, and unimaginable measures were taken to resuscitate it.

The financial crisis was nearly an extinction-level event. Anybody who believed that the system could continue without drastic reform afterward was probably beyond convincing or stood to profit too much personally from maintaining the status quo. Each succeeding financial crisis of the last three decades was more severe than the last because the underlying imbalances that caused it were growing exponentially, distorting the economy more profoundly and becoming less susceptible to correction without inflicting severe hardship on significant parts of society. After each of the previous crises, serious financial reform was sloughed off and the reins on risk-taking were further loosened in the name of free markets. For example, conduct that increased systemic instability, such as the creation of off-balance-sheet entities to conceal debt, continued to receive favorable treatment under bank capital rules even after the abuse of ...