Joseph Stiglitz on What Wall Street Has (and Hasn't) Learned Since 2008


After the 2008 financial crash, bank CEOs had a message: We've learned. We won't do it again.

This seemed like a reasonable offer, too. Capital increased. Leverage came down. Lending standards improved.

But then last year, JPMorgan Chase suffered a multibillion-dollar loss in the London Whale fiasco. Suddenly, the idea that risk management had improved since 2008 was called into question.

I recently sat down with Nobel Prize-winning economist Joseph Stiglitz in his office at Columbia Business School. In this clip, Stiglitz discusses what Wall Street has (and hasn't) learned since 2008 (transcript follows):Â

Joseph Stiglitz: I think some have learned their lesson as I look over the landscape, I'm not sure. We all saw what happened with what we call "The Whale Trader" at JPMorgan; clearly they didn't learn the lesson. I think one of the problems is that the too-big-to-fail problem has gotten worse. So these banks know that they're so big that they will almost surely be bailed out. The problem of incentive structures being perverse and encouraging excess risk taking is only being slightly muted. So as I look at the basic structural problems, they are still there, and in some ways worse. I think that obviously the government's looking over their shoulders more, and that has made them perhaps a little bit more cautious.

More from the Motley Fool
With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan is a buy today, check out The Motley Fool's premium research report on the company. Click here now for instant access!

The article Joseph Stiglitz on What Wall Street Has (and Hasn't) Learned Since 2008 originally appeared on

Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.