Why This Crisis Differs From the 2008 Version by Francesco Guerrera Tuesday, August 9, 2011 There are three fundamental differences between the financial crisis of three years ago and today's events: Starting from the most obvious: The two crises had completely different origins. The older one spread from the bottom up. It began among over-optimistic home buyers, rose through the Wall Street securitization machine, with more than a little help from credit-rating firms, and ended up infecting the global economy. It was the financial sector's breakdown that caused the recession. The current predicament, by contrast, is a top-down affair. Governments around the world, unable to stimulate their economies and get their houses in order, have gradually lost the trust of the business and financial communities. SNIP The second difference is perhaps the most important: Financial companies and households had feasted on cheap credit in the run-up to 2007-2008. When the bubble burst, the resulting crash diet of deleveraging caused a massive recessionary shock. This time around, the problem is the opposite. The economic doldrums are prompting companies and individuals to stash their cash away and steer clear of debt, resulting in anemic consumption and investment growth. SNIP The final distinction is a direct consequence of the first two. Given its genesis, the 2008 financial catastrophe had a simple, if painful, solution: Governments had to step in to provide liquidity in droves through low interest rates, bank bailouts and injections of cash into the economy. SNIP Today, such a response isn't on the menu....The real issue is a chronic lack of confidence by financial actors in one another and their governments' ability to kick-start economic growth.