Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

This was the script that the administration liked. A light-touch government intervention had enabled private business to take the lead. Nationalization had been avoided. As President Obama had promised, “[P]rivate capital” would be “fulfilling the core—core investment needs of this country.” But what this celebratory narrative glossed over were the more ambiguous implications of the exercise. The stress tests subjected the accounts of the commanding heights of American finance to intrusive scrutiny not by the public and the markets but by select teams of government bank supervisors. By the same token, they placed a seal of official approval on profit-driven private business activity. They were the model of a new regime of comprehensive, anticipatory oversight but also of entanglement between the American state apparatus and the big banks. This might be obtrusive and expensive in bureaucratic terms. It was onerous for those banks subjected to it. But it also conferred privileges, specifically the implicit promise that a bank that passed the stress test was deemed safe by the Fed and the Treasury. If it came to a crisis, a bank that had passed the test could hardly be denied assistance. Among this group of tightly regulated and closely supported entities, there could be no sudden and unforeseen failures. With that risk removed, it was significantly cheaper for such banks to issue shares and borrow money. One study estimated that in the wake of the crisis the advantage in fun...

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