The financial crisis had many causes—too much borrowing, foolish investments, misguided regulation—but at its core, the panic resulted from a lack of transparency. The reason no one wanted to lend to or trade with the banks during the fall of 2008, when Lehman Brothers collapsed, was that no one could understand the banks’ risks. It was impossible to tell, from looking at a particular bank’s disclosures, whether it might suddenly implode.
For the past four years, the nation’s political leaders and bankers have made enormous—in some cases unprecedented—efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system. This hasn’t worked. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash.
Consider JPMorgan’s widely scrutinized trading loss last year. Before the episode, investors considered JPMorgan one of the safest and best-managed corporations in America. Jamie Dimon, the firm’s charismatic CEO, had kept his institution upright throughout the financial crisis, and by early 2012, it appeared as stable and healthy as ever.