Economic Policy/ Pick Your Financial Crash [View all]

What are the risks of a financial crash in the coming year? Let us count the ways.

by Robert Kuttner
December 9, 2025

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.

SNIP*
Given what we know about the crashes of 2008 and 1929, the right policy would be to bring the upstarts under the regulatory umbrella. But instead, last Friday the agencies agreed to the bankers’ demands to help competition by deregulating the banks and getting rid of the 2013 leverage limits. Now, dealmakers can play banks off against private credit entities for the best (most risky) terms. And banks can go beyond funding non-banks and set up their own non-bank affiliates. When the inevitable crash comes, government will bail out the insiders, leaving regular people to suffer the aftermath.

https://prospect.org/2025/12/09/pick-your-financial-crash/