Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

In the summer of 2009, with the acute crisis in the banking sector having been cauterized, both the European and the American economies began to recover. But aftershocks continued. With the insulation provided by the Fed and the Treasury, in the United States these aftershocks no longer manifested as acute stress in the financial system, but in misery spread across millions of households struggling with unaffordable mortgage payments and houses that were no longer worth the debt secured on them. The wave of foreclosures of American homes did not reach high tide until early 2010. Debtors continued to default, in other words, but their disaster did not pose systemic risks. They were the powerless ones who received precious little support from the Obama administration or anyone else. The main props to the economy other than the open-handed liquidity provision of the Fed were the automatic stabilizers of the fiscal apparatus. They left a deep dent in public finances, not just in the United States but across the advanced economies. In 2010 this would trigger a global backlash demanding fiscal consolidation and a return to the agenda of fiscal sustainability that had been so widely touted before the crisis. Controlling the debt-to-GDP ratio would become a mantra. After the largesse of the 2008 bank bailouts came austerity, though not for the same people, of course. But money is fungible. Ultimately, health care, education and local government services were all entries in the sam...