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The Current Economic Downturn: It's Totally Different Than 2008

Elliott R. Morss profile picture
Elliott R. Morss


  • Back in 2008, US banks gambled and lost.
  • The aftermath was problematic.
  • Today is quite different.

Elliott R. Morss, Ph.D. © All Rights Reserved

Back in 2008, a speculative bubble burst. It was caused by large US banks gambling with depositors' funds. It resulted in an economic collapse that it took almost a decade to recover from.

A little economic history: in the 1930s, the Glass-Steagall Act was passed that prevented banks from trading its deposits. By 2008, its provisions had effectively been eliminated by bank lobbyists. So banks started trading its deposits. What did they trade?

As we all know, there is a real estate cycle. It usually goes up for four years give or take and then down for a while. It had gone up for quite some time leading up to 2008 spurred on by bullish trading in "asset-backed securities" (ABS). What are ABS? They are "supposed" to be securities that have assets of equal or greater value backing them.

As it turned out, many of these so-called ABS had nothing backing them. Or even if they did, nobody could document where this backing came from. This was because they were bundled together and sold as packages and their documentation was lost. So when one of these failed in 2008, people wondered about the backing for other ABS and the entire market collapsed. Keep in mind that banks, with no real controlling regulations, were trading them. That led to runs on banks, and many of them collapsed.

2008-2009 Losses

And the fears resulting from the ABS bubble caused stock markets worldwide to crash. Back in 2009, I estimated a stock market wealth loss of $29 trillion. A friend of mine who worked at Bloomberg said "My Bloomberg terminal has a handy function for world market capitalization. It accounts for every stock on a public exchange." Since October 2007, it put the global stock market loss closer to $36 trillion. Ouch!

This article was written by

Elliott R. Morss profile picture
Elliott Morss has spent most of his career teaching and working as an economic consultant to developing countries on issues of trade, finance, and environmental preservation. Dr. Morss received a B.A. from Williams College in 1960 and a Ph.D. in political economy from The Johns Hopkins University in 1963. He has taught at the University of Michigan, Harvard, Boston University, Brandeis, and most recently at the University of Palermo in Buenos Aires. For several years, he worked in the Fiscal Affairs Department of the International Monetary Fund. He later helped establish Development Alternatives, Inc. (dai.com), a firm that became the largest contractor to the U.S. foreign assistance program (AID). Since his first IMF assignment in Ghana in 1966, he has worked in 45 countries. He has been the President of the Asia-Pacific Group, a British Virgin Islands for profit company with investments in Cambodia, China, and Myanmar. With Dr. Zhu Jia-Ming, he established Green China, an American NGO with the mission to increase the dialogue in China on the trade-offs between economic growth and environmental preservation. Dr. Morss has co-authored six books and published more than 50 articles in professional journals. He is currently available for consulting assignments.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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