JPMorgan Chase & Co. (JPM), Morgan Stanley (MS): Five Surprising Conclusions About the Financial Crisis

That Act was, of course, was repealed in 1999, and some have argued that the repeal was a major cause of the financial crisis. Senators Elizabeth Warren and John McCain have just recently introduced a bill that would recreate Glass-Steagall for our big financial institutions.

Blinder admits that the repeal of Glass-Steagall may have made Citigroup Inc (NYSE:C) even more of a mess than it would have been, but otherwise, it wasn’t a major factor in any of the big problems during the crisis.

5. Failure to solve the foreclosure problem is one of the main reasons for the weak recovery.
Blinder provides a very detailed analysis of our failed attempts to deal with the ever-growing foreclosure problem. He notes that there might be 10 million homes that will enter foreclosure proceedings before it’s all over. And this has considerably slowed our economy’s ability to recover. Overall, he assigns a grade of “D” to our response to the home mortgage foreclosure crisis.

Sadly, it didn’t have to be this way. For some reason, the single-mindedness we applied to rescuing the banks didn’t apply to assisting troubled homeowners. Our economy and countless individuals have suffered unnecessarily as a result.

The work ahead
I highly recommend this book, though you might not agree with all of its conclusions. Blinder is an unapologetic Keynesian, so despite his very admirable focus on the evidence, he clearly has a bias that is not shared by everyone. All of us have our own biases, of course.

Looking forward, Blinder’s views on our budget woes seem very sensible to me. He believes we need a short-term stimulus today along with massive deficit reduction for the future. Some of that future deficit reduction will come from taxes, but most of it should come from lower spending.

In the near term, however, Blinder implies that the “austerians” are on the wrong track. He writes:

The Earth is not flat. The moon is not made of cheese. Evolution really happened. And you don’t give your economy a short-run boost by cutting public spending.

Clearly, that’s a pugnacious statement from this very provocative book. I think you’ll enjoy reading it, however, even though it might stir you up at times.

The article 5 Surprising Conclusions About the Financial Crisis originally appeared on Fool.com is written by John Reeves.

John Reeves has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Citigroup and JPMorgan Chase.

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