The Great Financial Crisis of 2008 and Its Causes: We Have Now a Commodities Bubble and Even More Too-Big-to-Fail Banks

'The Risks Are Enormous' and Wall Street is Scarier Than Ever: Why Morgenson and Rosner Are So Worried

May 27, 2011

Daily Ticker - In "Reckless Endangerment," co-authors Gretchen Morgenson and Josh Rosner examine the origins of the crisis, starting in the early 1990s. The co-authors pull no punches and aren't shy about placing blame. (See: Reckless Endangerment: Morgenson, Rosner Name Names — Point Finger at Fannie Mae.)

Having taken a long, hard look back, I asked Morgenson and Rosner about what worries them today and looking forward.

Too Big to Fail: Now, Even Bigger!

"We have even more 'too big to fail' institutions; more politically interconnected, very deep and wide institutions that could create another systemic event," says Morgenson, a Pulitzer Prize-winning columnist at The New York Times. "It's almost as if the situation that brought us to Fannie Mae and Freddie Mac having to be bailed out has now been squared or quadrupled. It's worse, not better."

Rosner, an analyst at Graham Fisher, wholeheartedly agrees.

"The risks are enormous" because there's even more concentration of assets among the biggest banks, which are "too big to analyze and manage," he says.

If the financial system was a "house of cards" before the crisis, the situation is worse today because back then investors had "some sense the numbers being given in annual reports and quarterly filings were accurate," Rosner says. "Now we know the government seems to be [complicit] in allowing them to fudge those numbers."

Toil & Trouble

Another issue which keeps Rosner up at night is the Fed's uber-easy monetary policy.

"The Fed is still under the assumption all they have to do to revive an economy is blow a new bubble," he says, suggesting commodities and emerging market bubbles have replaced housing, which in turn filled in after the Internet bubble collapsed.

At the same time, the Fed is creating "a lot of interest rate risk" by keeping rates at zero for so long.

"As interest rates rise we'll see which banks are in trouble," he warns.

Speaking of trouble, Morgenson takes some solace that government regulators are (finally) starting to investigate alleged Wall Street crimes.

"It's hard to imagine a crisis this large, which created trillions of losses, was nobody's fault," she says.

Amen.