The stock market has made gains at rates that are several multiples more than the growth of the real economy for three years running. Investor euphoria is always a sign of danger ahead, but this time there are other special factors signaling a pending crash. And of course, they all interact. Once investors head for the exits, others start bailing.
I. Deregulation of Increasing Risk. Trump’s bank regulators are systematically dismantling the safeguards that were put in place after the financial collapse of 2008. That crash was caused by opaque financial instruments such as credit derivatives that allowed almost infinite amounts of leverage. When they turned out to be worthless, the collapse was also nearly infinite.
In the aftermath, Congress and the regulators limited the risks that banks could take. In classic Wall Street form, the wise guys responded by creating non-banks that could do most of what banks do.
Read HERE the full article by The American Prospect
