This penetrating analysis of the economic and financial crisis of 2008-9 places the crisis' eruption and evolution and the policy response to it in the context of U.S. economic history. Emphasizing the "too big to fail" aspect of the financial problem, it relates the issue to past episodes of excessive concentrations of economic and political power in the United States. Johnson and Kwak compare the reaction to the recent crisis to President Theodore Roosevelt's response to the powerful industrial trusts of the late nineteenth century and to President Franklin Roosevelt's confrontation with the excessive financial power that characterized banks in the 1920s. In both cases, conventional wisdom largely accepted these powerful entities until they created major problems for the economy and were challenged at the highest level. The conventional wisdom then changed abruptly, and new regulatory laws, practices, and institutions became an established part of the U.S. policy framework.
Johnson and Kwak argue that the country is going through a similar period today. Financial markets have evolved well beyond the reach of current regulation and authority, jeopardizing the entire financial system and, through it, the economy. The authors document the evolution of this disastrous mismatch, analyze how its failures led to the crisis, and propose new policy approaches to avoid repeating the recent experience. The book provides a convenient one-stop shop for understanding both the crisis and the policy remedies, only a few of which have begun to take shape, that it necessitates.