It’s no accident that the worst economic depression and financial crisis since the Great Depression were caused by deregulation that dismantled many of the protections put in place after the Great Depression. In a report entitled The Cost of the Crisis: $20 Trillion and counting, Better Markets, a nonprofit designed to support financial regulatory reform, tabulated the cost of the crisis on the economy and the American people on the fifth anniversary of the passage of Dodd-Frank regulatory reform legislation.
While the stock market has recovered the ground lost during the financial crisis, the real economy is still stuck in neutral. Millions of Americans are unemployed or underemployed, and hundreds of thousands have lost homes due to foreclosures. According to the report, the costs to the economy caused by the crisis include:
- $800 billion stimulus bill passed by Congress
- $15 billion in completed foreclosures
- $116 billion decrease in small business lending
- $2.8 trillion decrease in value of 401(k) plans and IRAs
- $24 billion decrease in government research and development spending
The deregulation of the late 1990s and early 2000s fueled a rise in risk-taking behavior by Wall Street banks and other financial institutions that led to the financial crisis. It’s no accident that Wall Street’s share of total domestic corporate profits rose from less than 10 percent in the last 1940s to just over 40 percent before the financial crisis.
Following the financial crisis, the vast majority of too big to fail banks were either directly or indirectly bailed out by the government, rather than being allowed to go bankrupt. The incredibly costly recovery from the bank-inspired crisis has been borne by the taxpayers.
The lack of accountability surround the crisis is mind-boggling. It behooves us to ensure that the regulations that have been passed since the crisis to re-regulate Wall Street are not watered down, ignored or unenforced. Otherwise, it’s almost certain that another, similar crisis will occur in the future.