It has now been ten years since the Global Financial Crisis of 2008 created a downturn so severe that it became forever known as the Great Recession. The crisis had such an impact that it changed the country significantly. Despite this, many financial institutions that created the problems are still operating under the too big to fail mentality a decade later. On top of this, the recovery that has ensued has been uneven as gains have not been equitably distributed across income levels.
This has created new risks. An enormous pool of student loans could be the tripwire for the next market meltdown. The unlearned lessons of the financial crisis remind you of why you should invest in gold. One good reason is that gold offers insurance and protection during market turbulence. Gold has an unparalleled historical track record of safeguarding assets throughout the ages. Today is a good time to start considering Gold IRA rollover rules and regulations.
The Financial Crisis Costs to the Economy Were Massive
One thing that no one can dispute surrounds the financial damage suffered by the American economy from the 2008 meltdown. The global financial crisis caused the United States to lose between $6 trillion and $14 trillion in expected economic output. The government was only finally able to overcome it after it pledged to provide support and help that amounted to around $12.6 trillion.
The banks which in many ways caused the financial crisis have since paid a heavy penalty for their involvement. In the U.S., the six biggest banks were fined more than $110 billion as penalties for their role in causing the crisis that was the most severe since the Great Depression of the 1930’s. Yet despite these hefty financial punitive burdens, these organizations are even bigger than they were in the run up to the crisis that they engineered.
The Bigger Banks Are Still Too Big To Fail
One major concern now is that banks then considered to be too big to fail are as big or even bigger today. A decade after the fact, the concentration of the largest banks is practically as great as it was. The ten largest banks still hold more than 55 percent of all assets in the U.S. This is only a few percentage points from their holdings in 2008. Despite the fact that concentration risks were a major part of the last crisis, this trend has not materially changed.
Phil Angelides served as chair of the federal government’s inquiry into the underlying causes for the crisis. In January he warned the Wall Street Journal:
“This is not an industry that has examined itself and remade itself in the wake of the crisis.”
This chart below shows how the financial sector has today expanded into a larger segment of the American economy once again. It could lead to future problems that cause yet another financial crisis.
The Big 3 Credit Rating Firms Still Dominate
Another contribution to the 2008 financial crisis came from the irresponsibility of the big three credit ratings firms. Moody’s, Standard & Poors, and Fitch were heavily criticized by the SEC for their role in handing out positive credit ratings for debt that was in reality highly risky. A conflict of interest existed with them because the companies received compensation from the debt issuers for the ratings they received.
A decade later, the three firms continue to overwhelmingly dominate the debt ratings market. They still collect fees from the debt issuers for their credit ratings. In fact a shocking 94 percent of all revenue in the credit ratings industry accrued to these big three companies in 2016 according to the Securities and Exchange Commission.
Home loan financing also represented another major contributing factor in the Global Financial Crisis. The subprime mortgage meltdown occurred as financial institutions made loans to borrowers that were beyond their ability to repay. Quasi government institutions Freddie Mac and Fannie Mae had encouraged this by making many of the toxic loans. In 2008 they had to be bailed out by the federal government because of their financial involvement.
At the time, Congress pledged that it would legislate a complete change to the way home financing functioned in the U.S. going forward. The truth is that they did not change anything significantly in this regard. Today these same government backed finance companies comprise 96 percent of all mortgage securities that are issued.
An Uneven Recovery Has Caused Inequality to Worsen
There has been an economic recovery in the last ten years. A major problem is that the recovery has been so uneven that inequality has worsened. Employment has gone back up. Yet the median household income has only risen by 5.3 percent since year 2008. Adjusted for inflation, household income has not risen at all. Around 23 percent of the jobs today exist in occupations where the average income is beneath the government established poverty line as well.
Consumer Debt Is Rising Again
Debt service payments as a percentage of disposable household income reached a post-crisis low at below 10 percent in 2012. Since then consumer debt has been steadily rising though. At the end of 2017, it had increased to nearly 10.5 percent.
At the same time, the CDO’s (collateralized debt obligations) that helped to cause the crisis are once again increasing. Those dangerous financially engineered products touched a pre-crisis high of $489.7 billion in 2007. After seeing falling sales through 2010, they began steadily rising again. Year 2017 saw $127 billion of them sold. While it is not yet an imminent crisis indicator, it should raise concerns for you.
Student Loans Now Represent A Threat for A Future Crisis
There is a dangerous new threat that has arisen in the past ten years. This surrounds the issue of student loans. They have been dramatically increasing as a percentage of total consumer debt in the last decade. Since the global financial crisis, this category of loans has more than doubled from just over $600 billion back in 2008. Today’s student loans are a shocking $1.3 trillion. This compares to only $1.2 trillion for all auto loans and just over $800 billion in total consumer credit card loans and debt.
Default rates are exceptionally high in this student debt category and are only rising. Many students have been unable to obtain high enough paying jobs to keep up with the payments. The loans require at least a full decade to pay down and in some cases significantly longer. This has caused many analysts to worry that student debt will be a potential key trigger of the next financial crisis.
Gold Will Hedge Your Portfolio in the Next Financial Crisis
As history has shown, the next financial crisis is only a matter of time. You can not predict with certainty when it will happen or which troubled financial asset exactly will trigger it. What you can do is protect your retirement assets from the inevitable popping of the next bubble.
When financial turbulence rocks the markets, gold is the retirement portfolio hedge you need to have. It has a five thousand year proven history of safeguarding value and assets. This is why you need a gold IRA. Now is the time to start considering what gold goes in an IRA before the next crisis begins. When asset prices are in free fall, it will be too late to start chasing the price of gold.