Beyond connecting capital providers and seekers, major financial firms like Goldman Sachs serve a crucial function as market makers by absorbing unwanted risk from one party until a counterparty can be found. This intermediation is essential for market liquidity and function.
Post-crisis regulations designed to create an infallible financial system come at a cost. Stricter capital requirements and risk aversion stifle the "animal spirits" necessary for growth. Preparing the economy to perfectly avoid the "crisis of the century" means losing years of growth in between.
The stock market and the real economy operate on different time horizons. The economy is a day-to-day measure, while the market is a discounting machine that extrapolates every piece of new information "from infinity back to the present," causing massive valuation swings from seemingly small events.
A successful economy must be judged on two separate mandates: its ability to generate wealth (GDP growth) and its ability to distribute that wealth according to societal values. The U.S. excels at the first but struggles with the second, framing inequality as a failure of the political system, not the financial one.
During a financial crisis, even profitable firms face existential threats. The risk isn't from direct exposure to bad assets, but from a systemic "daisy chain" of distrust where counterparties refuse to pay their obligations, leading to a complete liquidity freeze that can bankrupt anyone.
Judging government actions during a crisis (like 2008 or COVID) with hindsight is misleading. Decision-makers must act with speed and incomplete information, opting for broad, imperfect solutions. While these may appear wasteful or poorly targeted later, they are often the only viable options under extreme pressure.