The Consequences of the 2008 Financial Crisis on Household Wealth Inequality: A Comparison between the United States and Canada.

The history of the Great Depression has shown that credit must be both loaned and borrowed responsibly, but the 2008 subprime crisis made manifest that this lesson has not been learned. While the 1930s crisis was overwhelmingly caused by careless lending in the form of margin accounts for stock trading, the 2008 financial crisis originated in mortgage lending to a category of households that represented high financial risk. Through the financial innovation of securitization, the high-risk category that had previously been called the uncreditworthy was relabelled subprime and integrated to the credit market. Ultimately, this category proved unable to continue their payments and their massive defaults and bankruptcies lead to a global financial crisis characterized by collapsing real estate markets, insolvent banks and a prolonged recession. As to be expected, however, the consequences of this crisis differed significantly between countries. The goal of this paper is to compare the consequences of the 2008 financial crisis on wealth inequality in Canada and the United States. The statistical analyses were performed on the Luxembourg Wealth Study (LWS), which is currently the most comprehensive database available to study wealth inequality in a comparative approach. In order to properly show the effects of the financial crisis, it was necessary to analyse wealth inequality with both absolute and relative measures. The often-remarked observation that the Canadian economy was largely spared the financial crisis is confirmed empirically in detail when examining household wealth distributions. The results highlight the fundamental importance of financial regulation, the economic and democratic stakes of homeownership policy, the risk compromise between growth and financial innovation and the importance of financial security as both a concept of sociological analysis and a policy objective.