So much for post-industrial America. After decades of our leaders and sages assuring us that the United States would thrive as we moved beyond manufacturing, President Obama used his State of the Union address to officially declare post-industrial America an unqualified bust.
Of all the lies that the American people have been told the past four decades, the biggest one may be this: We’ll all come out ahead in the shift from an industrial to a post-industrial society. Yes, we were counseled, there will be major dislocations, as there were during the transition from an agrarian to an industrial economy, but the America that will emerge from this transformation, like the America that emerged 100 years ago, will be one whose citizens are ultimately more prosperous and secure than their industrial-era forebears.
Rather than wait for borrowers to repay loans, banks were adopting a technique called securitization. The banks created pools of loans and sold investors the right to collect portions of the inflowing payments. The bank got its money upfront. Equally important, under accounting rules it was allowed to report that the loans had been sold, and therefore it did not need to hold any additional capital. But in many cases, the bank still pledged to cover losses if borrowers defaulted.
When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.
Today, the biggest of those banks are even bigger.
