For the dozen years leading up to the financial crisis of 2008, we experienced unprecedented growth, which created unrealistic expectations. We thought that the sky was the limit and the only way was up. Prosperity seemed permanent, and the old rules of cause and effect no longer applied. We believed in our entitlement instead of our responsibility to ourselves, each other, and the world. And then it all came to a screeching halt.
"Over the past two years, we have faced the most severe financial crisis since the Great Depression. The financial system failed to perform its function as a reducer and distributor of risk. Instead, it magnified risks, precipitating an economic contraction that has hurt families and businesses around the world," wrote Timothy F. Geithner, U.S. Treasury Secretary, and Lawrence Summers, Director of the National Economic Council, in a Washington Post commentary.
Trillions of dollars disappeared from the North American economy, and financial markets dropped more than 44% from their highs. Banks went under, companies big and small declared bankruptcy, people lost their jobs and their homes.
How did it happen? The misguided behaviour of businesses, advisors, and individuals combined to create a perfect storm. As President Obama noted in a Wall Street Journal interview, "We had a massively overleveraged consumer, a massively overleveraged corporate sector, and a financial system that did not have much restraint." ...