During the financial crisis of 2008, the government bailed out Wall Street, which was only a cosmetic fix to a systemic problem that needed major financial reforms. Because of that, there will be another major financial crisis in the near future.
For students graduating over the next few years: When the next financial crisis strikes, imagine how it will affect your future career and job search.
The crisis in 2008 was the cause of 30 years of Neoliberal Reaganomics that reached a boiling point in 2007. During that era, Wall Street banks became more complex and more interwoven across the world to the point that the failure of one bank led to a global recession.
The most important aspect of the aftermath of the financial crisis is that literally nothing has been done to reign in the power and size of Wall Street.
Wall Street loves its profits, and it made sure that when it destroyed the economy there would be no repercussions for its actions.
The problems that caused the crisis are not only still going on, but are even worse.
There were three major causes of the last financial crisis that still continue today.
The first was financial derivatives — financial bets or contracts that derive their value from the performance of something else. If the market does well, everyone does well; but if the markets go down, then derivatives multiply the losses. Since the Obama administration took over, there have been no major reforms on derivatives. As a result, the derivative market is twice as big as it was in 2008.
The second major cause was the banks on Wall Street being “too big to fail.” Since the financial crisis of 2008, those same banks are larger and more powerful than ever.
The third major cause was predatory lending. Banks were giving subprime loans to borrowers and, in turn, selling them to Wall Street for profit. This trend led to very little incentives to care about the quality of the loans. Most of these loans have not been refinanced and are still out there in a pool of bad loans being bought, sold and traded.
Today, there are three additional major concerns for us regarding the economy that make another crisis more likely: the euro zone crisis, China and the global debt crisis.
For the past five years, Europe has been in financial chaos. So far, Greece, Portugal, Ireland and Cyprus have been bailed out. Germany’s fiscal hawks have been pushing for austerity in Europe for years. As a result, many of the indebted countries are in further debt, and their economies are weaker, which makes paying their debts back that much more difficult.
Since the 1970s, China has had major consistent economic growth, making it the envy of the world. But recently, there have been concerns that China is due for a recession. Generally, countries go through growth and decline periods known as business cycles. If China slips into a recession, it will be catastrophic for the world’s current fragile economy.
The United States, European Union and Japan have debts that are at or are reaching record levels. The global debt crisis is putting the governments in a bad position because when there is another financial crisis, it will be harder to cushion the fall.
We students should be prepared for the next financial crisis, one that will make our last one seem like a cake walk.
If the Euro Zone doesn’t become more stable, if China slips into decline or if any of our “too big to fail” banks fail, the futures that we are planning today will change drastically.
Because President Barack Obama and Congress have failed to reform Wall Street, a financial crisis will not be likely but inevitable. Hopefully, this time the people will rise up, take to the streets and demand change from their government – not one of campaign slogans and jargon but of systemic reforms.
Joshua Hajiakbarifini is a 24-year-old political science and economics senior from Baton Rouge.