“Back in the 1930s, bankers’ relative wages did not start falling until the mid 1930s and the size of the financial sector, relative to GDP, peaked in 1932, not 1929. That was partly because the entire economy was shrinking after the Wall Street Crash. But another factor was that the Glass Steagall reforms [which separated commercial from investment banking] were not implemented until 1933. Arguably, it took even longer until bankers finally realised that the nature of finance had changed: it was no longer purely a profit-seeking, speculative game but was shaped by more of a utility mentality, thanks to government pressure and deleveraging (and, subsequently, the Second World War).”
As I-O regulations are strengthened and policed Iv agents find the competition for chasing a smaller amount of profits is too strong, some then leave. Also an Iv-B bubble is based on innovation and counter innovation, when these are exposed in the crash there is no secrecy that enables them to be rebuilt competitively. Consequently they are more stagnant waiting for other innovations to come. These start at B like with liar loans so that Iv builds counter innovations such as subprime on them. The trees then must start with new B roots to regrow in the humus of the GFC.