10 Years After Lehman. And Nothing Has Been Fixed
The comments below are an edited and abridged synopsis of an article by Tuomas Malinen
The general storyline of the global financial crisis goes like this: Funds from all over the world headed to the US, where the banks, to finance the housing market boom, developed unsound financial products that brought down the global financial order. However, the crisis was much larger in that it wouldn’t have been possible without the whole system playing along.
Little has been done to fix the original sins. Moreover, by pushing the debt cycle even further, central bankers and political leaders have created an even more dangerous economic situation
The imbalances that plagued the world economy before 2008 are even larger now. Debt is higher, and the extended use of unorthodox policies by the central banks have created a platform for speculation of an unprecedented scale. Japan’s lost decade shows that policies that save everyone and provide banks with endless liquidity lead to zombified banking and business sectors that are unable to grow and are at constant risk of failure. Now, this is a global issue.
The financial crisis was not born out of void. The imbalances and risks were visible before the crisis hit. It was born of speculation, regulatory failures, moral hazard and incentives to get into debt. Little has been done to fix these issues and, in some cases, they have been made worse. More of the same has the potential to bring down the global economy in the future.
Malinen discusses the prerequisites; the crisis; and the cure as the pathway to the coming crisis.