Trust: 10 years after the financial crisis, have we learnt the lessons?
It is a decade since the world was hit by what has become known as the global financial crisis. The collapse of Lehman Brothers in September 2008 is widely seen as a watershed in the emergence of a harsher economic climate. Although there were tentative signs of trouble beforehand, the demise of the Wall Street investment bank was widely identified as the onset of the crisis. There were widespread fears about ‘contagion’ across the financial system and governments were forced into extraordinary emergency to pump money into the economy and to bail out banks like HBOS and Royal Bank of Scotland. The crisis was soon followed by economic recession and, a couple of years later, by the emergence of what has become known as economic austerity as government deficits rose.
The subsequent downturn was arguably the worst since the Great Depression of the 1930s. By some measures, average incomes in the UK have not got back to their pre-crisis levels. The economic problems have had political consequences, too. Many go so far as to argue that the financial crisis played an important role in the rise of populism. In this view, the resultant sluggish economic growth and widening inequality helped drive a backlash against established politics. The have-nots looked askance as wealthy bankers were bailed out with lavish helpings of state aid.
With the benefit of 10 years of hindsight, how should the global financial crisis be viewed? There are questions to be asked both about what happened back then and developments since.
The first relates to the collapse of Lehman and the subsequent financial turmoil. Were the finance sector’s woes the cause of subsequent economic problems or was the crisis a symptom of underlying, structural weaknesses in the economy? What role did bankers play in instigating the crisis? How should the massive bailouts of troubled financial institutions be judged in retrospect? Were they economically necessary and can they be morally justified?
Subsequent developments also demand intellectual interrogation. What was the relationship between the financial crisis and the subsequent recession? Is it accurate to describe the current economic policies of Western governments as ‘austerity’? How significant was the economic fall-out from the crisis as a factor driving the rise of populism?