Economist Brian S. Wesbury challenges the common belief that the 2008 financial crisis was caused by greedy bankers and market failure. Instead, he points to government policies—specifically, the Federal Reserve’s decision to hold interest rates artificially low and the reintroduction of the mark-to-market accounting rule—as the true causes. By keeping interest rates below inflation for years, the Fed encouraged overborrowing and risky behavior by both consumers and financial institutions. When housing prices dropped and the mark-to-market rule forced banks to record massive paper losses, panic spread. The crisis worsened despite massive government interventions like TARP and quantitative easing. Only when mark-to-market accounting was reversed in March 2009 did recovery begin, driven not by policy, but by entrepreneurs and market resilience. Wesbury’s core message: government actions often create the conditions for downturns, and recovery is fueled by the private sector, not bailouts.
Key Learnings for SMBs:
- Watch Interest Rates Closely
Low interest rates may seem like an opportunity, but they can lead to risky overexpansion. Don’t base big financial decisions solely on cheap credit. - Be Cautious During Booms
Just because the market looks good doesn’t mean it’s stable. Growth fueled by artificial signals (like low rates) can reverse quickly. - Understand Regulatory Impact
Changes in accounting rules or government policy—like mark-to-market—can have immediate effects on liquidity and perceived value. - Don’t Rely on Government Rescue
Recovery is often driven by market forces and business innovation—not bailouts. Build resilience into your business model. - Stay Informed Beyond Headlines
Conventional wisdom isn’t always correct. Dig deeper into what’s really driving the economy and your industry. - Prioritize Financial Flexibility
Avoid overleveraging. Strong balance sheets and flexible operations help you withstand economic shocks. - Invest in Innovation, Not Reaction
Recovery and growth come from forward-thinking leaders—those who build, create, and adapt—not those who wait for rescue.
