This article describes important differences for policymakers between the last financial crisis and the next one, assuming the next one isn’t too far in the future. The point is that because of all the tools used in response to the 2008 financial crisis, there will be fewer options available when the next crisis hits.
In August 2008, just before the slow-moving financial crisis turned into outright panic, the secretary of the Treasury, Hank Paulson, traveled to the Summer Olympics in Beijing. At a private lunch with Chinese officials, he learned that members of the Russian government had been urging the Chinese to join them in selling off large portions of their holdings in Fannie Mae and Freddie Mac, the multitrillion-dollar companies that supported (and still support) much of the American mortgage market. The goal, it seemed to Paulson, was to force the U.S. government into an unplanned emergency bailout of the two companies—or risk destabilizing the economy by making it impossible for people to get mortgages. “Whenever I envisioned the Russians selling, the knot in my stomach got bigger,” Paulson told me recently. (The Chinese, for their part, declined to sell.)