Six years after the collapse of Lehman Brothers, The Associated Press reports, there are several signs that the lessons of the financial crisis may already be fading from collective memory.
Just last week, as Congress acted to loosen the regulation of the high-risk investments that ignited the 2008 crisis, housing regulators cut minimum down payments on home loans. Also last week, the Institute of International Finance declared it “worrisome” that global indebtedness, as a share of world economic output, has reached record levels.
All this comes as subprime auto loans for financially stretched buyers are surging. And the so-called too-big-to-fail banks that needed a taxpayer bailout in 2008 now loom even larger than before the crisis: America’s five biggest banks account for 44% of bank assets, up from 38% in 2007, according to SNL Financial.
The trend toward pre-crisis lending practices worries analysts who favored far-reaching reforms to safeguard the system.
“We’re on a very dangerous trajectory,” Simon Johnson, professor of global economics at the Massachusetts Institute of Technology, says.
Johnson says he fears that last week’s congressional vote shows that bank lobbyists still carry the political clout to dilute financial regulations.
By all accounts, the system isn’t as vulnerable as it was before the crisis. The Treasury Department’s Office of Financial Research, set up after the crisis to monitor risks, said earlier this month that “threats to financial stability are moderate.”
U.S. banks have increased their capital defenses against loan losses by over 27% since 2007. Richard Hunt, president of the Consumer Bankers Association lobbying group, rejects any notion that banks are weakening credit standards.
“If you’re a banker who survived over the last five years,” Hunt says, “the last thing you’re going to do is return to that period of time. We’re nowhere close to returning to the type of loans” issued just before the crisis.
Still, watchdogs fear the risks are accumulating. Read the full story.
