Midterm elections and Gallup polls aside, there is an important dialogue disturbingly absent from the dire economic climate we find ourselves in today: What happened during the financial crisis of 2008?
Greed took over in the form of derivatives, the housing bubble burst, the risks taken on Wall Street were unprecedented, there were bailouts and some firms collapsed or were absorbed. These are the ambiguously labeled elements commonly mentioned when discussing the 2008 crisis that fail to tell the real story and only skim the surface of much larger problems at hand.
By all measures, what happened during the crisis was catastrophic, and the repercussions we continue to see today are direct results. That being said, it is my opinion that the primary reasons we got into this mess are grossly over-simplified or mostly ignored.
In many respects, this is not surprising. After all, there is a reason I’m not lecturing on the difference between a mortgage back security and a collateralized debt obligation is. It is utterly confusing, egregiously complicated and seemingly not very important to your daily life. This is where we, as college students, fall into the trap of ignorance.
As ridiculous as it may sound, financial innovations such as mortgage-backed securities and collateralized debt obligation have indirectly, through the interdependent financial system we live in, affected our tuition, our ability to receive a loan, the possibility of getting a job, etc. Arguably, what happened before the recession and continues to happen now has and will alter our futures.
So the question then becomes what can we do about it? My simple answer to this is learning from our mistakes.
Look into what happened. Understand what money-making mechanisms were used on Wall Street and why, in fact, many of the firms were too big to fail. Read about the reasons for TARP or Wall Street bailouts and do your best to put aside your political ideologies — which often too easily distort the way you interpret facts.
You’ll find that the problem does not simply fall on the liabilities of big investment banks or the government. Everyday consumers like us have obviously lost step with being able to balance our check books or understand what is affordable and what’s not. This is all the more reason to learn about the financial operations that affect all our lives.
Little things such as sitting in on a finance class, looking up the countless number of books on this subject in the library and getting involved in financial literacy programs can all better inform you on one of the biggest issues facing our country. And while you may not be in the mood to turn on C-SPAN during the day to watch the Financial Crisis Inquiry Commission hearings, go to YouTube and you can find a catalogue of reliable education videos dealing with the crisis in concise and easy to understand ways.
There are definite problems with the way the financial industry operates and the inefficacy of financial regulators, but before you pick one side to argue for — more financial regulation or less financial regulation — try to begin understanding what agents are at play. You can’t begin to fix a problem until you know what it is and the problems seen in 2008 are far from gone.
While a financial overhaul bill was passed in July, its efficacy remains to be seen and the debates spurred by the recession are far from over. As students, let us broaden our knowledge of how financial institutions and mechanisms work so we can later proceed from an intelligible debate to the seeds of a solution.
Who knows, where you fall on the regulation debate might not be the end-all solution after you better comprehend the factors involved.