Wow, I suppose most people saw at least a summary of the FCIC’s report on the financial crisis. It explained that 12 of the 13 largest U.S. financial institutions “were at risk of failure.” Think about that for a moment so when the Fed Chairman says the peak of the crisis was the worst shock in global history, worse than the Great Depression, you get a feel of what’s occurred.
Government actions certainly averted chaos from occurring, but those decisions have also thwarted the healing process and many of the policies (particularly monetary policy) that played a major role in fueling the behavior that led to the crisis have not changed. We don’t go from the worst crisis in global history to a normal economic environment in a manner of 18-24 months, and we’re seeing that. While the economic state of things has improved, we’ve simply saddled the public sector with even more debt; we’ve delayed the arrival of market-clearing prices within the housing market and household balance sheet repair; and we’ve certainly engendering improper risk assessment. This is precisely why I remain extremely cautious, and skeptical that we’ve ultimately left the crisis behind.