For the second time in the 21st century, mistakes in the financial sector could topple the economy.
Now, forecasters are warning of a potential recession from this extremely avoidable banking crisis.
“Banks are finding themselves with investments that are losing big money, and when depositors come in, they can’t turn them into something liquid fast enough to pay back people who want their deposits,” he says. “That’s what happened in 2008—people had all these mortgage-backed securities and no one knew what they were worth.”
But it’s curious that the beginning of the 21st century may be marked by two recessions created by the banking sector—especially since consumers had been driving economic growth until now. If you forget the SVB bank panic, things have been looking pretty good in the overall U.S. economy this year. Employers added, more than analysts had expected; existing home sales jumped 14.
But the high inflation and slow economic growth of the 1970s and 1980s undermined the banking business model, and both the savings-and-loan institutions and the commercial banks were deregulated. The banking industry embraced financial innovation, coming up with new products and complicated ways to make money, including packaging mortgages into securitiesThe finance industry lobbied Congress to repeal Glass-Steagall for over a decade, finally succeeding in 1999, and profits flowed.
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