Question

"The only thing we learn from history is that we learn nothing from history"
Have regulators and policy makers learnt their lessons? (This is related to the regulation imposed after the financial crisis in 2008)

Answer 1

The key to understanding whether any lessons were learnt from the history is to recognise and revisit what happened in history and what was done at the time to rectify the error & fast forward to how things can be avoided in the future

GREAT DEPRESSION 2008 - CAUSE

The subprime mortgage crisis was caused by hedge funds, banks and insurance companies. The first two created mortgage-backed securities. The insurance companies covered them with credit default swaps. Demand for mortgages led to an asset bubble in housing.  

When the Federal Reserve raised the fed funds rate, it sent adjustable mortgage interest rates skyrocketing. That sent home prices plummeting, and borrowers defaulting. Derivatives had spread the risk into every corner of the globe. That caused the 2007 banking crisis, the 2008 financial crisis, and the Great Recession. It created the worst recession since the Great Depression.

POLICIES TO RECTIFY

The federal government tried to rectify the crisis and bring stability into financial market by providing financial support to the troubled companies and inject some confidance in the market that would help the lonely citizen,although it didnot support lehmann brother in there pursuit of governmental guarantee which they wanted to use for selling lehmann brothers to bank of america and other several banks which ultmately led to them filing bakruptcy

on other dimension they did come up with something called TARP

In September 2008 the US government and Federal Reserve had been searching for solutions to stabilize the financial markets and save the other banks from collapse. They deveolped a plan which consisted of buying troubled assets from the banks, in order to minimize uncertainty in the market. This plan was entitled the Troubled Asset Relief Program (TARP). It was signed into a law on October 3rd 2008, the Congress allowing a $700 billion budget. Most of the firms which got money via TARP have paid it back and until summer 2011 the financial markets stabilized and grew(Wall Street Oasis).

LESSONS

Onve we are through a trouble , we believe we are now master in order to avoid it from coming backagain, but in reality we can only be master if we look for what caused it and keep correcting over every little step along the way ,rather than being disillusioned by the fact that trouble is once for alll under control,

“The ultimate thing that brings down financial markets is excess leverage … So, you look where’s the big leverage, and right now I think it’s in emerging markets.” as said by a great economist "GARY SHILLING"

$8 trillion in dollar-denominated emerging-market corporate and sovereign debt, especially as the U.S. dollar rises along with interest rates. “The problem is as the dollar increases,” he said, “it gets tougher and tougher for them to service [that debt] because it takes more and more of their local currency to do so.” Of that, $249 billion must be repaid or refinanced through next year

RAGHURAM RAJAN says

"there has been a shift of risk from the formal banking system to the shadow financial system.” He also says the post-crisis reforms did not address central banks’ role in creating asset bubbles through accommodative monetary policy, which he sees as the financial markets’ biggest long-term challenge.

“You get hooked on leverage,” he said. “It’s cheap, it’s easy to refinance, so why not take more of it? You get lulled into taking more leverage than perhaps you can handle.”

so what we can assume is allthough we are all very aware of the past crisis and would like to believe the policy makers have it under control , the bitter truth is it's not because we are staring down the same road of depression and crisis, the only thing that we are doing is delaying it a bit rather than controlling a bit