It took less than a decade for the deregulated system to collapse into the Great Financial Crisis (1999-2008) and then six painful years to recover.

For over 25 years, the financial industry spent more than $300 million lobbying Congress through 12 separate attempts to dismantle Glass-Steagall Act protections that separated commercial and investment banking, finally succeeding with the Gramm-Leach-Bliley Act in 1999 (PBS Frontline, 2003).

Even after deregulation opened new profit opportunities, banks weren't satisfied and systematically engaged in widespread mortgage fraud, creating "NINJA" loans with no income verification, misrepresenting borrower qualifications, and knowingly packaging toxic mortgages into securities they sold to investors (Corporate Finance Institute, 2025; EconLib, 2018; Griffin, 2021).

Bank executives demonstrated clear awareness of the risks they were creating, as evidenced by their selling personal stock holdings well before the crisis hit and internal reports describing a "brazen obsession with increasing loan originations, without due regard to the risks" (Imperial College London, 2020; Public Integrity, 2022).

Government regulators either actively collaborated through the "revolving door" to lucrative Wall Street positions or failed to oversee the shadow banking system that Federal Reserve Chairman Ben Bernanke later admitted "lacked meaningful prudential regulation" and operated outside regulatory authority (Carnegie Mellon University, 2013; Federal Reserve, 2010).

When the inevitable collapse occurred, it devastated the global economy with 8.7 million Americans losing jobs, $11 trillion in household wealth destroyed, and 59 out of 71 countries simultaneously entering recession, requiring six years for meaningful recovery (Wikipedia contributors, 2025; Chen, Mrkaic, & Nabar, 2019).

The U.S. government prioritized financial institution stability over public welfare, authorizing $700 billion in taxpayer bailouts while 861,664 families lost their homes to foreclosure in 2008 alone, with bailed-out executives still receiving multi-million dollar bonuses (MIT Sloan, 2020; Investopedia, 2021).

While Iceland prosecuted 67 banking executives, Spain convicted 65 former bank officials, and Ireland jailed four bank executives, the U.S. pursued virtually no high-level criminal prosecutions, instead collecting $200 billion in civil fines that companies paid without admitting wrongdoing (Queen's University Belfast, 2023; El País, 2017; Independent, 2016; NPR, 2013; New York Times, 2016).

The executives who created the crisis not only escaped punishment but prospered, with figures like Robert Rubin earning $126 million from Citigroup during the crisis period—a 470-fold increase from his government salary—while ordinary Americans absorbed the economic devastation (Celebrity Net Worth, 2025; Los Angeles Business Journal, 2000).

This precedent established that large financial institutions can pursue extremely risky strategies knowing profits will be privatized while losses are socialized, creating the moral hazard where "inadequate control often leads to socially excessive risk-taking" (Cato Institute, 2009).

The shadow banking system that amplified the crisis has been only partially reformed, with many of the same institutions continuing to operate with minimal oversight while maintaining dangerous interconnections with traditional banks (Financial Stability Board, 2021).

Credit rating agencies still operate under the same "issuer-pays" model that created conflicts of interest during the crisis, though they now face slightly more oversight after their role in inflating ratings on toxic securities was exposed (Academic journal on conflict of interest, 2022).

The "too big to fail" problem has actually worsened, with the largest banks now even bigger and more systemically important than they were before 2008, essentially guaranteeing future taxpayer bailouts (Cato Institute, 2009).

Political influence through campaign contributions continues unabated, with the finance/insurance/real estate sector remaining "far and away the largest source of campaign contributions to federal candidates," contributing over half a billion dollars in recent election cycles (OpenSecrets, 2025).

The American public's lack of institutional memory and the complexity of financial regulations mean that the same deceptive practices could easily be repackaged and sold to a new generation of policymakers, especially as the executives who lived through the crisis retire and are replaced by those with no direct experience of its devastating consequences.

References

References

Academic journal on conflict of interest. (2022). Dealing with the conflicts of interest of credit rating agencies. Corporate & Mercantile Law Journal, 17(3), 334-371.

Carnegie Mellon University. (2013). The revolving door in banking regulation. Carnegie Mellon University Working Paper.

Cato Institute. (2009). Moral hazard and the financial crisis. Cato Journal, 29(1), 143-162.

Celebrity Net Worth. (2025). Robert Rubin net worth. https://www.celebritynetworth.com/richest-businessmen/wall-street/robert-rubin-net-worth/

Chen, W., Mrkaic, M., & Nabar, M. (2019). The global economic recovery 10 years after the 2008 financial crisis. IMF Working Paper, WP/19/83.

Corporate Finance Institute. (2025). NINJA loan - How it works, history, pros and cons. https://corporatefinanceinstitute.com/resources/knowledge/finance/ninja-loan/

EconLib. (2018). What is a NINJA loan? Library of Economics and Liberty. https://www.econlib.org/library/Enc/NINJALoans.html

El País. (2017, February 24). Bank execs who returned money in Spain's credit card case could avoid jail. https://english.elpais.com/elpais/2017/02/24/inenglish/1487937600_033461.html

Federal Reserve. (2010). Shadow banking. Staff Reports, No. 458. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458.pdf

Financial Stability Board. (2021). Regulation of shadow banking. FSB Consultative Document. https://www.fsb.org/uploads/P050318-1.pdf

Griffin, J. M. (2021). Ten years of evidence: Was fraud a force in the financial crisis? Journal of Economic Literature, 59(4), 1293-1321.

Imperial College London. (2020, September 7). Bankers knew the risks they were taking before the 2008 crisis. Imperial College Business School. https://www.imperial.ac.uk/business-school/ib-knowledge/finance/bankers-knew-the-risks-they-were-taking-the-2008-crisis/

Independent. (2016, July 30). Ireland jails three top bankers for 'deceitful and corrupt' actions in financial crisis. https://www.independent.ie/irish-news/courts/ireland-jails-three-top-bankers-for-deceitful-and-corrupt-actions-in-financial-crisis-34942847.html

Investopedia. (2021, April 14). Privatizing profits and socializing losses: Overview. https://www.investopedia.com/terms/p/privatizing-profits-and-socializing-losses.asp

Los Angeles Business Journal. (2000). Little wonder Robert Rubin jumped to Citigroup-he. https://labusinessjournal.com/news/little-wonder-robert-rubin-jumped-to-citigroup-he/

MIT Sloan. (2020, December 1). Here's how much the 2008 bailouts really cost. https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much-2008-bailouts-really-cost

New York Times. (2016, July 21). A clue to the scarcity of financial crisis prosecutions. https://www.nytimes.com/2016/07/22/business/dealbook/a-clue-to-the-scarcity-of-financial-crisis-prosecutions.html

NPR. (2013, July 26). After five years, why so few charges in financial crisis? https://www.npr.org/2013/07/26/205696458/after-five-years-why-so-few-charges-in-financial-crisis

OpenSecrets. (2025). Finance/Insurance/Real Estate. https://www.opensecrets.org/industries/indus?ind=F

PBS Frontline. (2003). The long demise of Glass-Steagall. Public Broadcasting Service. https://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

Public Integrity. (2022, January 28). The roots of the financial crisis: Who is to blame? https://publicintegrity.org/business/the-roots-of-the-financial-crisis-who-is-to-blame/

Queen's University Belfast. (2023, June 9). Accountability after economic crisis. https://www.qub.ac.uk/research-centres/CentreforSecurityLaw/filestore/Filetoupload,1504011,en.pdf

Wikipedia contributors. (2025, August 17). 2008 financial crisis. Wikipedia, The Free Encyclopedia. https://en.wikipedia.org/wiki/2008_financial_crisis