Eyler Comments on Lessons Learned From the Great Recession

Five years ago, in October 2008, the stock market plunged while businesses eliminated hundreds of thousands of employees, almost overnight. The recession of 2007 had suddenly become the Great Recession, the biggest shock to the U.S. economy since the Great Depression.

The credit card web site CardHub recently asked national economic experts about their opinion about its cause and lessons learned. SSU Economics Professor Rob Eyler was one of them and offered his perspective.

Robert Eyler - Frank Howard Allen Research Fellow, Director, Executive MBA Program, Sonoma State University


The Lehman Brothers bankruptcy five years ago is viewed by some as the start of major changes in the economy.

"I think the Lehman Brothers bankruptcy was an effect not a cause. I think it showed, much like Enron's historic rise and fall, that risk has rewards and serious implications when you guess wrong. I think what the bankruptcy brought to light was that major institutions can put themselves as risk of failure and perhaps not have a taxpayer/governmental solution if they begin to fail. The Too Big To Fail hypothesis in financial markets has been around since the early 1990s in earnest, and this was an example of that not holding."


Do you think the high unemployment we are still experiencing is the temporary effect of a weak economy or a structural change that has long-term implications?


"I think the dynamics of the labor force are changing (boomers not retiring at the same age or rate as in past generations) and part of that includes the financial aspects of making that retirement choice. As a result, the systematic way new entrants (college grads in specific) are finding work is changing daily. It is also a function of a weak economy and that there is a large number of people working in off-payroll jobs to survive. It is key to realize that the unemployment rate is usually based on estimates of payroll unemployment, not total income-generating activity. However, the structural aspects of aging workers remaining in place will continue to change our labor markets "


Have the reforms enacted by Congress in response to the events of 2008 achieved positive results or made the situation worse?

"Like any regulatory environment, the actions have stopped the bleeding and rearranged incentives for now. Most likely a lot of what Congress has done to protect consumers, banks from themselves, and also in terms of increasing federal debt will be innovated around when a market is involved. History suggests that financial innovation can move around regulatory environments toward profits like water finds air if needed to flow. Positive for now, we will see medium to long-term, when there will likely be another round of regulations."


What do you see as the over-riding lesson we should have learned from the Lehman bankruptcy and the dramatic economic events that followed?

"The overriding lesson is that all institutions are vulnerable and that when excessive risks are taken, some should/must fail to temper market activity.


The complete round up of expert commentary can be found at:

http://www.cardhub.com/edu/ask-the-experts-great-recession-lessons/

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