Lessons Learned and Unlearned
By Amy Willis
2018 marks ten years since the advent of the 2008 Financial Crisis, an event to which all of Econlib, including EconTalk, devoted a great deal of space. In this episode, host Russ Roberts welcomes back Stanford University professor of finance and economics Anat Admati to revisit the Crisis. Of this seminal event, she says, “… it changed my life. I mean, it taught me so much. I can no longer be what I was a decade ago.”
Of course many people were affected, some tragically, by the crisis. And this crisis seemed somehow different from previous scares. Roberts and Admati discuss, for example, why this crisis was so much more harmful than the dot-com bubble of the early 2000s. Their conversation ends with Roberts asking, if things are so bad, and “too big to fail” is still in place, why have we not seen another crisis in ten years?
1- Admati says she lived in a “sheltered bubble” prior to the crisis. What was the nature of that bubble, and how did she re-evaluate and change her position post-crisis?
2- What kind of financial sector risks is Admati worried about today, and why?
3- What does Admati mean when she says, “… the inefficiency of banking is fundamental to banking?” Is the FDIC a net positive for consumers post-crisis? What role did it play in the crisis? (And why does Admati say of consumer bank depositors, “… we are the nicest creditors in the whole economy. “)
- P.S. You may want to read more about the FDIC in the entry on “Financial Regulation” in the CEE and at Investopedia.
4- How do Roberts and Admati evaluate the role of economists and business professors in the policy response to the crisis? To what extent do they share Luigi Zingales’s accusation of “capture?”
5- What is “big-shot-ness syndrome,” according to Admati, and what role did it play in the crisis? Which sector do you think is most susceptible to this syndrome- academic economists, policy makers, the media? Explain.