September 15, 2008, is a day that I will never forget. I was working for the Federal Reserve at that time, based in Chicago. My office phone rang early that morning: it was my counterpart at the Fed in New York. “Lehman Brothers has filed for bankruptcy and all hell is breaking loose,” I remember him saying. “Can you get out here to lend a hand?”

I promised to check with my local boss, go home to pack, and fly out that evening. “You don’t understand,” he said. “We’ve made a reservation for you on the 10 a.m. departure. Go straight to the airport. In transit, please text your clothing sizes to me; we’ll order the things you’ll need for the first few days. And have your wife send two weeks of gear to our address in lower Manhattan.”



I called home. “Honey,” I explained, “I won’t be home for dinner … not for quite a while. And can you send a bunch of clothes to New York?” “Who is she?” my wife asked. That was the last laugh we shared for some time.

As we all reflect back on the events of a decade ago, several questions arise. Have we learned the lessons offered by the experience and taken corrective action? Have our powers of surveillance improved, so that we have a better chance of detecting the next crisis? And what are the lingering after-effects that still require attention? Now that we are ten years out from the crisis, let’s assess what we have learned.

The Dangers of Debt

Debt was the kindling for the crisis. Normal amounts of borrowing are healthy; in fact, modern economies cannot work without intermediation between savers and investors. But having sufficient equity backing lending provides a buffer against loss, insurance against contagion, and the right incentives for both parties to the transaction.



By 2008, Americans had taken out mortgage debt using a very thin foundation of equity. According to the National Association of Realtors, the average down payment on a home had dropped to just 2%. Home loans had become increasingly complex, as had the mortgage-backed securities (MBS) formed from those loans.