Will We See Another Bumper Crop of Financial Crisis Books?

• Author: McKinley, Vern

The Great Recession had its genesis in the market instability of late 2007. By the summer of 2008 it was clear the United States was not only in recession but also sliding into a financial crisis.

It did not take long for books chronicling the early phases of the financial crisis to appear. In March 2009, William Cohan's House of Cards (Doubleday) told the story of the March 2008 collapse of Bear Stearns. In July 2009, David Wessel's In Fed We Trust (Crown Business) engaged in a more ambitious effort, recounting the story of the full range of rescues during the financial crisis. A massive wave of financial crisis books followed in the ensuing decade, relating the events of the Great Recession or, seizing on the newfound interest in financial instability, telling the stories of historical financial crises.

Are we facing a financial crisis?/ Switching gears to 2020, will we see a second wave of financial crisis books in the coming decade? To answer that, we should consider whether the 2020 COVID-19 recession includes a financial crisis.

Unlike U.S. recessions, which are officially identified by the National Bureau of Economic Research's lagged pronouncements of their lifecycle, there is no similar high-profile pronouncement of the existence, beginning, or end of a U.S. financial crisis. That said, the Federal Reserve Bank of St. Louis and the Treasury Department's Office of Financial Research do maintain financial system stress indices that pinpoint periods of financial instability. There was stress in the early months of 2020, but it waned by July. We will see if that remains the case or was only a respite.

A number of elements are considered prerequisites for a financial crisis:

* A recession that has a duration well beyond a year. Recessions in the post-World War II period have lasted less than one year on average. During the Great Recession the economy weathered an 18-month recession, and during the financial crisis of the 1980s the economy endured a 16-month recession.

In comparison, the initial recession at the beginning of the Great Depression lasted a staggering 43 months. We do not yet know the duration of the COVID recession or whether it will take a "double dip" form, but a financial crisis could result even if there is no lengthy economic downturn.

* The failure or near failure of a significant number of financial institutions. The Great Recession saw the outright failure of Lehman Brothers and near failure of Bear Stearns, AIG...