Mark Thoma has posted the article What Really Happened.

Thoma says the following:

This is from David Warsh (note that, despite Dodd-Frank and other regulatory measures instituted since the financial crises,we are still susceptible to the shadow bank run problems described below):

What Thoma quotes extenively is a review by David Warsh of a book that is soon to be released.

What Really Happened – Economic Principals: …the best economics book on the fall calendar … (to be published next month) is a slender account about the circumstances that led to that near meltdown in September 2008, and an explanation of why they were not apparent until the last moment.

It is very important for people to understand the shadow banking system that was the proximate source of the collapse in 2008.  If you think that the Federal Reserve System is the sole or even the largest source of the U.S. money supply, then you need to educate yourself about the shadow banking system.

It is also instructive to see how economists can create new theories to explain large swaths of history that are based on certain changes to the laws regulating the economy, and then forget that they have to revisit the explanations when the laws revert to what they were before that new explanation was proposed.

I guess, that due to my excessive age, I was able to remember the explanation of what set us on the road to relative economic stability and imagine the consequences of Bill Clinton and the Republican Congress’s repeal of the Glass-Steagall Act.  The Democrats in Congress who vociferously opposed this repeal could see what was coming, too.  Some say that by the time the act was repealed, the system had changed enough to get around the act anyway.  In either case, the outcome was foreseen by many.  The crash of 2008 was that foreseen outcome.

Elizabeth Warren was one of those who were forecasting the crash some years before it happened.  In her in-person political speeches she presents a nice, short history of where we came from in the aftermath of 1930’s depression and how we got ourselves right back into the same fix.  Scott Brown has shown no indication that he has a clue as to what happened.