1.
What's Changed
Good Times Are Back in the Market
The government pumped trillions of dollars into the economy to stabilize the banking system. Bank stocks lagged behind the market but got a boost after November 2016, when Donald Trump was elected president and promised to tear up crisis-era regulations.
Performance since January 2008
Source: WSJ Market Data Group
Wall Street Pay Has Rebounded
Average bonuses and salaries on Wall Street have climbed back from their postcrisis lows. But pay isn’t as lavish at the top: CEOs of big banks earn less than they did around 2007–08.
Average securities industry salaries in New York City, adjusted for inflation
Source: New York State Office of the Comptroller
The Recovery Has Been Uneven
Employment has risen, but about a fifth of U.S. jobs are in occupations where the median income is below the federal poverty line. And median household income is barely above its 2008 level, adjusting for inflation.
Median household income is only up 5.3% since 2008.
Low-wage jobs
Unemployment rate in December
* Latest data available for low-wage jobs Sources: Census Bureau (median income); Prosperity Now Scorecard (low-wage jobs); Bureau of Labor Statistics (unemployment)
Inequality Has Grown
People at the bottom of the pay scale lost their jobs during the crisis. The government’s response to the crisis helped inflate the value of assets like stocks and real estate, which are more often owned by the wealthy.
Distribution of wealth by wealth percentile
2007
Top 1 percent
33.7%
Next 9 percent
37.7%
Bottom 90 percent
28.6%
2016
Top 1 percent
38.7%
Next 9 percent
38.5%
Bottom 90 percent
22.8%
Source: Federal Reserve Survey of Consumer Finances
For the Bailouts, Many Unhappy Returns
The financial crisis cost the U.S. economy some $6 trillion to $14 trillion in lost output, and ended only after the government promised aid worth an estimated $12.6 trillion. Yet many were dissatisfied with aspects of the response, ranging from the price tag to the perceived choice of beneficiaries.
The Rising Costs of Doing Business
The six largest banks have paid at least $110 billion in penalties related to the crisis.
The Federal Reserve increased its ranks of bank field examiners by 39% since 2008 to 1,836 as of 2017.
2.
What's Mostly the Same
The Biggest Banks Are Still Big
Analysts say the financial crisis highlighted the risk of concentration. But 10 years later the trend of larger firms is still intact.
Percentage of total assets held by the 100 largest commercial banks
Note: Yearly data from December of each year
Source: Ricardo T. Fernholz and Christoffer Koch, "Big Banks, Idiosyncratic Volatility, and Systemic Risk"
“This is not an industry that has examined itself and remade itself in the wake of the crisis.”
Phil Angelides, who chaired the U.S. government’s official inquiry into the causes of the financial crisis, told The Wall Street Journal in January.
The Financial Sector: Same As It Ever Was
The financial sector is again becoming a bigger piece of the economy. That could translate to future risks for borrowers and consumers in another crisis.
Finance and insurance industry as a percentage of GDP
Source: U.S. Bureau of Economic Analysis
Revolving Door Still Spins
Regulations are tougher, but the regulators enforcing them often come from the industries they oversee.
bookended her chairmanship at the SEC as a lawyer defending Wall Street executives and corporations.
...and Spins and Spins
-
Jay Clayton
- then: Partner, Sullivan & Crowell
- now: Chairman, SEC
-
Brett Redfearn
- then: JP Morgan
- now: Director of Trading and Markets, SEC
-
Keith Noreika
- then: Simpson Thatcher
- then: Acting Comptroller of the Currency
- now: Simpson Thacher
-
Joseph Otting
- then: CIT Bank, U.S. Bancorp, and other banks
- now: Comptroller of the Currency
-
Steve Mnuchin
- then: Goldman Sachs
- then: OneWest Bank
- now: Treasury Secretary
-
Gary Cohn
- then: Chief Operating Officer, Goldman Sachs
- then: Director, National Economic Council
-
Shahira Knight
- then: Fidelity Investments
- now: National Economic Council
-
Dina Powell
- then: Goldman Sachs
- then: Deputy National Security Advisor
- now: Goldman Sachs
-
DJ Gribbin
- then: Managing Director, Macquarie Capital
- now: Special Assistant to the President for Infrastructure Policy
-
Geoffrey Berman
- then: Shareholder, Greenberg Traurig
- now: Interim U.S. Attorney, Southern District of New York
-
Robert Khuzami
- then: Lawyer, Deutsche Bank
- then: Enforcement Director, SEC
- then: Partner, Kirkland & Ellis
- now: Deputy U.S. Attorney, Southern District of New York
-
Randal Quarles
- then: Cynosure Group, The Carlyle Group
- now: Vice Chairman for Supervision, U.S. Federal Reserve
Credit-Rating Firms Still Have Conflicts
The big three credit-rating firms—S&P, Moody's and Fitch—came under scrutiny for assigning favorable ratings to risky debt. Today, these firms still dominate the market and issuers still pay them for their ratings.
94% of the credit-rating industry's revenue was earned by three firms.
Note: As of 2016 Source: Securities and Exchange Commission
U.S. Housing Policy Is Frozen in Time
When Fannie Mae and Freddie Mac were bailed out in 2008, lawmakers promised a reset of U.S. housing finance. But 10 years later, next to nothing has changed.
Government-backed firms* make up 96% of mortgage security issuance
* Fannie Mae, Ginnie Mae and Freddie Mac Source: Urban Institute
3.
Areas to Watch
“People aren’t going to be that stupid again. So they find another way to be stupid…I think there’s going to be other crises.”
Richard Bookstaber, former risk manager at Morgan Stanley and author
Bitcoin, a New Mania
Cryptocurrencies, like bitcoin, have exploded onto the scene, in part reflecting advances in technology as well as splintering trust in the financial system. Regulators are probing a number of the players involved in the market, and analysts warn that investments in these currencies could prove worthless.
Total market value of cryptocurrencies
Source: CoinMarketCap
Trust in the Financial System: Reality Bytes
At same time, companies have more personal information than ever—some of the largest losses of data to hacks happened in recent years.
Equifax lost 147.9 million Americans’ data in a 2017 breach. We still don’t know who did it.Source: the company
Bracing for a Student-Loan Problem
Some worry student debt, rising for years, could figure in the next credit downturn.
Consumer credit outstanding
Source: Federal Reserve Bank of New York
Indexes: Out of Control?
The rise of exchange-traded funds has made indexing a household word. But the number of indexes world-wide has taken off and now dwarfs the number of stocks, raising questions about the risks investors are taking on, knowingly and otherwise.
There are more than 3 million equity indexes world-wide, compared to about 52,000 listed companies.
Sources: Index Industry Association (indexes); World Federation of Exchanges (listed companies)
Your New Landlord: Private Equity
America’s mortgage crisis created a glut of foreclosed homes for sale. Big investors like the Blackstone Group swooped in to buy and rent them out, creating a new class of American renters.
Consumer Debt Is Creeping Back Up
Personal debt has fallen, but it’s starting to edge higher again.
Household debt service payments as a percentage of disposable personal income
Source: Federal Reserve
...and So Is Complexity
A decade after risks associated with financial engineering nearly brought the economy to its knees, sales of similar products are ticking higher. But Wall Street hasn’t forgotten what happened last time, and so for the moment few analysts are raising alarms.
On the Regulatory Front, Lots of Uncertainty
Republicans have promised a rollback of the 2010 Dodd-Frank financial overhaul, which President Donald Trump calls a "disaster." But Democrats are largely opposed, and bankers say it's not so simple. Any overhaul must focus on rules "that don't work well or are unnecessary," says JPMorgan Chase CEO James Dimon
The Next Time May Be Different
A lasting legacy of the 2008 meltdown was the sharp rise in U.S. debt -- incurred to backstop the financial system as investors fled. While officials and investors largely agree that taking on this debt was the right course, authorities will have much less leeway to act aggressively the next time around.
U.S. public debt has nearly tripled, and the Fed has less room to cut interest rates.
U.S. public debt
Fed funds target rate
Sources: TreasuryDirect (public debt); Federal Reserve (Fed funds rate)
“I don’t believe it’s safer. As they say, a rose by any other name is just a rose, that also goes for risky, often completely misunderstood derivatives.”
Carl Icahn, investor