James Notaris, author
Written by

James Notaris

In June 2007, 41 percent of Americans told Gallup they had a great deal or quite a lot of confidence in U.S. banks. By April 2009, 18 percent did.1

No single bank failure or bailout vote from those years shows the damage as plainly. The financial system ran on trust, and in less than two years most of that trust disappeared. Bitcoin arrived in the middle of the collapse with a direct offer: a way to move money that asks people to trust far less.

What the crisis cost families

The Great Recession began in December 2007 and ended in June 2009, the longest recession since World War II. Home prices fell about 30 percent on average from their mid-2006 peak to mid-2009. Household net worth dropped from about $69 trillion in 2007 to $55 trillion in 2009, and unemployment peaked at 10 percent in October 2009.2

The losses reached people who had never bought a mortgage bond or heard the term. A family could make every house payment on time and still watch its home lose a third of its value. A worker could do a job well and still lose it.

The failures at the top came in sizes the public had never seen. When Lehman Brothers filed for bankruptcy in September 2008, it declared $639 billion in assets, the largest bankruptcy filing in U.S. history.3

Trust did not come back

Confidence stayed down long after the recession ended. Gallup measured 22 percent in June 2009 and a record low of 21 percent in June 2012.4 In 2016 the figure stood at 27 percent, below 30 percent for the eighth straight year and about half the 53 percent recorded in 2004.5

The fall looks steeper against the long record. When Gallup first asked the question in 1979, 60 percent of Americans expressed confidence in banks, a level the poll has not matched since.6

The recession ended in 2009. The doubt about the institutions holding people's money did not.

An answer built on less trust

Bitcoin's design starts from that doubt. The whitepaper published under the name Satoshi Nakamoto describes online payments sent from one party to another without going through a financial institution, and its conclusion calls the design "a system for electronic transactions without relying on trust."7

The system replaces the banker's promise with public rules. Every transaction goes into a shared record that any participant can check, and each new batch of records requires computing work that makes rewriting the history impractical.7

Bitcoin did not restore faith in banks. It offered a different arrangement: verify the rules instead of trusting the institution. The crisis showed what concentrated trust can cost. Bitcoin turned that lesson into software.

Notes

  1. Establishes that 18 percent of Americans expressed a great deal or quite a lot of confidence in U.S. banks in April 2009, down 23 points from June 2007. Gallup, Americans' Confidence in Banks Hits New Low, April 2009
  2. Establishes the recession dates, its rank as the longest since World War II, the 30 percent decline in home prices, the fall in household net worth from about $69 trillion to $55 trillion, and the 10 percent unemployment peak in October 2009. Federal Reserve History, The Great Recession and Its Aftermath
  3. Establishes the September 15, 2008 Chapter 11 filing by Lehman Brothers, its $639 billion in declared assets and its rank as the largest bankruptcy filing in U.S. history. HISTORY, Lehman Brothers Declares Bankruptcy
  4. Establishes the record-low 21 percent confidence reading in 2012, the 22 percent reading in 2009 and the pre-recession level of 41 percent in June 2007. Gallup, Americans' Confidence in Banks Falls to Record Low, June 2012
  5. Establishes the 27 percent confidence reading in 2016, the eighth straight year below 30 percent, and the 53 percent reading in 2004. Gallup, Americans' Confidence in Banks Still Languishing Below 30%, June 2016
  6. Establishes that 60 percent of Americans expressed confidence in banks when Gallup first measured it in 1979, a level not matched since. Gallup, Confidence in Banks Remains Low, June 2014
  7. Establishes the whitepaper's description of payments sent directly between parties without a financial institution, the public transaction record secured by proof-of-work, and the concluding description of a system for electronic transactions without relying on trust. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System

The views expressed are the author’s own and are offered as general commentary. They do not constitute legal, tax, investment or accounting advice.