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Robert Shiller Reflects On The Financial Crisis 10 Years Later

10 years ago this weekend, Lehman Brothers filed for bankruptcy. It was a watershed moment that tipped the scales in the global financial crisis, sparking the Great Recession. Yahoo Finance’s Alexis Christoforous and Nobel Prize winning Yale economist Robert Shiller discuss.

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Yale Economist Robert Shiller

Nobel Prize Winning Yale Economist Robert Shiller Reflects On The Financial Crisis 10 Years Later

Transcript

Ten years ago this weekend Lehman Brothers filed for bankruptcy the largest in U.S. history. It was a watershed moment that tipped the scales in the global financial crisis sparking the Great Recession. Just how far have we come. And what might ignite the next economic crisis. I am delighted to be joined here by the Nobel Prize winning Yale economist Robert Shiller. Bob it's great to have you on the show again. My pleasure. All right so a decade later what do you think Wall Street has learned from that collapse. They've learned something of bank capital ratios are up but I don't think people learn that they need to take my course. Yale. Sign up for online too it's free.

So. OK. But the problem is we've had many different financial crises in the past and we tend to remember only the most recent one. Now this was a dramatic one but it will always be a little different when they founded the Federal Reserve. They were they were reacting to the 1997 crisis. Remember that one. I don't have a firsthand reverend but the Fed was designed to deal with that crisis. Right now we've completely forgotten that.

What do you think investors have learned if anything. Are we a little more risk adverse now.

At the moment I don't think we're particularly risk averse. There's something about the Donald Trump experience. He models risk taking behavior and conclusion people are drawing is you know you don't have to be that careful and you can survive if you say something that turns out to be wrong or right doesn't matter. You can still stay in office and so you can survive your risky investment. I think I think Trump encouraged us to be more risk taking.

I want to get back to that in a moment but back to ten years ago do you think the Fed that Ben Bernanke that that Hank Paulson that Tim Geithner at the Treasury secretary at the Treasury Department did they do the right thing by saving AIG and Bear Stearns and not saving Lehman Brothers.

Well it might have been better if they had saved Lehman Brothers too. But you had to be there at that time. I suppose they were worried about saving everybody looks too much like socialism. If companies can't be allowed to fail. So they did allow one to fail and then they were expansionary in their policy. And it wasn't the great depression again.

It could have been right we were shaping up now as you mentioned our banks are better capitalized now 10 years later but what do you see as the biggest risk to our banking system right now.

Well I think it would be a major turn in the markets. The financial crisis we were dating it to 10 years ago. But the precursors to that crisis started happening even a year or two before that home prices peaked in 2006. In some cities even in 2005. That's years we've seen these things take shape gradually and then eventually people start thinking what's going on here and they started panicking and then by that it's too late.

Right. Yeah. If you take a look at how far we've come since that I mean unemployment was at 10 percent in 2010 we're now at three point nine percent. The S&P 500 up 100 more than 140 percent since the day that that Lehman collapsed. Are you sensing a little irrational exuberance here.

Well yeah I think so. I like that term. It's a name of your book your best selling author really we should say said she felt sure Alan Greenspan really came up with that one years ago when he was describing the market.

Right. He popularized right. And the reason the reason the phrase is so famous by the way is not because it's eloquent it's because if people don't remember how this happened the markets all over the world dropped about 4 percent when when Greenspan said those words people should know.