Krugman: There’s a whiff of 2008 in the air

On July 15, 2007, the New York Times published an article titled “The richest of the rich, proud of a new Gilded Age.” 

The article was centered on a profile of Sanford Weill, CEO of Citigroup, who, like others in the financial industry, believed that they were leading America into a new era of prosperity — justifying their immense wealth — and that the government should scrap regulations that were getting in the way of financial innovation.

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Exactly one year and two months later, Lehman Brothers failed, plunging the world into the worst financial crisis it had seen in more than 70 years. 

Many of the innovations of which Weill and others were so proud had, it turned out, created a system of poorly regulated financial institutions — so called “shadow banks”

 — that were exposed to a 21st-century version of the vast wave of bank runs in 1930 and 1931 that turned an ordinary recession into the Great Depression.

Shadow banking has had a major revival; by some measures, as I’ll explain, shadow banks are bigger relative to the financial system as they were when Lehman collapsed.  

At the moment worries are centered on private credit — lending by institutions that, unlike banks, are effectively shielded from public disclosure and regulation. 

What’s actually on their books?

After two lenders went bust last fall, Jamie Dimon, CEO of JPMorgan Chase, made waves with his comment that “When you see one cockroach, there are probably more.”

Paul Krugman Apr 5 2026

https://paulkrugman.substack.com/p/private-credit-and-the-new-world

Banks Need to Worry About Shadow Banks

Shadow banks controlled $225 trillion at the end of 2020, or nearly half of all global financial assets

Global supervisors at the Financial Stability Board call these non-bank financial intermediaries.

november 17, 2022

https://englundmacro.blogspot.com/2022/11/banks-need-to-worry-about-shadow-banks.html

The shadow banking system and The Volcker Rule

https://internetional.se/billgrossoctober1.htm

On Thursday August 9 2007, financial markets suddenly seized up.

Since I was running the Financial Times markets team, I spent two days frantically trying to identify the reason for the panic. Nobody knew. But that weekend I suddenly woke in the middle of the night with an image of a Spanish bin in my head.

A month earlier I had attended a credit conference in Barcelona, where I read brochures about a little-known, and supposedly safe, entity known as a “structured investment vehicle”. 

The material had seemed achingly dull. So on the way home I tossed the papers into an airport bin — and forgot it. But, somehow, my subconscious knew that had been a mistake. So I awoke and went online to uncover what I had left in that bin.

Gillian Tett FT 10 August 2017

https://englundmacro.blogspot.com/2021/03/on-thursday-august-9-2007-financial.html

Some people were apparently shocked to learn that gambling was occurring at Rick's Cabaret

https://www.internetional.se/casablanca.htm