Nobel economist reveals how Trump is setting up a 'rerun' of the 2008 financial crisis

The Wall Street meltdown of September 2008 gave the United States its worst financial crisis since the Great Depression of the 1930s. Both then-President George W. Bush and his successor, Barack Obama, drew criticism for supporting the costly Wall Street bailout, but both of them maintained that the bailout was necessary in order to prevent the Great Recession from worsening.

In a Substack column posted on November 28, liberal economist Paul Krugman made a comparison between the 2008 financial crisis and the current 2025 economy, and laid out a variety of Trump administration policies that he warns could lead to a "future financial crisis" — from a cryptocurrency bubble to undermining the independence of the U.S. Federal Reserve.

"The clear lesson of 2008 is that effective financial regulation is essential," Krugman emphasizes. "For three generations after the great bank runs of 1930-31, America avoided 'systemic' banking crises — crises that threaten the whole financial system, as opposed to individual institutions. This era, which Yale's Gary Gorton calls the Quiet Period, was the result of New-Deal-era protections — especially deposit insurance — and regulations that limited banks' risk-taking. But post-1980, finance was increasingly deregulated."

Krugman adds, "In particular, the government failed to extend bank-type regulation to shadow banks that posed systemic bank-type risks. And the crisis came."

According to Krugman, Trump and his allies haven't learned the lessons of The Great Recession.

"In a way," Krugman explains, "the laxity that made the 2008 crisis possible was understandable. By the 2000s, nobody in government or the financial markets remembered what a real financial crisis was like. And no, watching 'It's a Wonderful Life' on Christmas Day doesn't count. But here we are in 2025, and 2008 wasn't that long ago. Many of us still have vivid memories of the gut-wrenching panic that gripped the world when Lehman fell. Yet Donald Trump's allies and cronies are now moving rapidly to dismantle the precautionary regulations introduced after 2008 to reduce the risk of future financial crises ... But key players in Congress, within the administration, and, alas, at the Federal Reserve, are apparently determined to make a 2008 rerun possible."

"The MAGA war on financial stability is being waged largely on two fronts. First, there's an ongoing effort within some parts of the Federal Reserve to drastically weaken bank supervision — oversight of banks to prevent them from taking risks that could threaten the financial system. The Fed has multiple roles: in addition to setting interest rates, it also has primary responsibility for bank supervision," Krugman continued. "The Fed is supposed to be quasi-independent, and so far, it has preserved its interest-rate-setting independence in the face of intense pressure by Trump to cut rates. Yet a Trumpian agenda is attempting to overtake the Fed's bank supervision operations…. The second front of MAGA's war on financial stability is on behalf of the crypto industry…. Along with its many other sins, the Trump administration is doing its best to make a future financial crisis more likely."

Paul Krugman's full Substack column is available at this link.