The financial collapse of 2008 remains a fascinating subject for me and most other people interested in business cycles.
There is trend material related to 2008 that is becoming important and I wish to let you know about it.
We know that the financial collapse of Fall 2008 does not resemble any previous business cycle patterns. I have followed business cycles for nearly 50 years and this was a genuine exception. It resembled the financial panic of 1987, but that was a very short-term event. 2008 is still having repercussions on the economy five years later.
The 2008 event was systemic which makes it of greater interest. What creates a systemic failure is not the same as what creates an economic slow down or acceleration in business output... which is what a standard business cycle is.
I identified a source of systemic failure in the 2007 change in accounting known as 'mark to market'. I have given that accounting change unusual importance because it had systemic effects, but I have always been aware that there were underlying trends that I could not recognize.
'Mark to market' made visible some underlying trend because the 'market' was no longer responding positively to the underlying financial instruments. The market value of a bond had become very different from its original issuing value.
The following article shows the data that is necessary to identify the trend.
The basic cause of the 2008 financial collapse was a change in the demographics of the United States. The baby boomers between 2003 and 2007 reversed their residential buying patterns. They went from buyers of suburban homes to sellers as they moved to smaller units and into urban areas.
You can see what they were doing in figure number two. The places in which the greatest switch from buying to selling occurred are in the very same locations where the greatest collapse of the housing market occured: California and Nevada. Those are still the two states with the largest overhang of repossessed homes.
Now we have it. Now we know what caused the crash of 2008. The combination of the baby boomers moving from buying homes to selling and the change in accounting rules that dramatically influenced financial institutions and banks.