[H] Incomes, of course, are even more stagnant now that unemployment is at 9 percent. And that pain isn,t being shared equally: inequality has actually risen since before the recession, as joblessness is proving sticky among the poor, but recovery has been swift for the rich. Household borrowing is still more than 90 percent of GDP, and the conditions that drove it up there are, if anything, worse.
3. The Shadow Banking Market
[I] The financial crisis started out similarly severe, but it wasnt, at first, a crisis of consumers. It was a crisis of banks. It never became a crisis of consumers because consumer deposits are insured. But large investors pension funds, banks, corporations, and othersarent insured. But when they hear that their collateral is dropping in value, they demand their money back. And when everyone does that at once, its like an old-fashioned bank run: The banks can,t pay everyone off at once, so they unload all their assets to get capital, the assets become worthless because everyone is trying to unload them, and the banks collapse.
[J] This is an inherent problem of privately created money, says Gary Gorton, an economist at Princeton University, It is vulnerable to these kinds of runs. This year, were bringing this shadow banking system under the control of regulators and giving them all sorts of information on it and power over it, but were not doing anything like deposit insurance, where we simply make the deposits safe so runs become an anachronism.
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