The collapse of Lehman Brothers decades ago this weekend has inevitably raised questions about whether we have learned anything from that disastrous period – and have taken sufficient measures to try and prevent it from being repeated.
There was undoubtedly a lot of nonsense at the time, in which politicians of each tribe instinctively hastened to partisan judgments about their opponents and some hoping to explain the end of capitalism.
Too many people had forgotten that with false gestures corrective busts came and that capitalism actually reacted, as always, by exposing underlying weaknesses to economic reality. Unfortunately for some, including many innocent parties, capitalism worked, not failed.
In the United States, the Democrats quickly blamed President George Bush Jr. for tolerating the growth of subprime loans. The critics chose to ignore it. President Bill Clinton encouraged Fannie Mae and Freddy Mac, the major US mortgage lenders, to expand their loan books for political benefit in markets that are most inclined to foreclose. I know this is true, because I saw the press releases bragging about Clinton's decision in the 1990s.
It is not surprising that the former Chancellor and Prime Minister, Gordon Brown, did not comment slowly and offered the warning that the world "would be in danger of sleepwalking in a future crisis". Ironically, he is talking about the fact that we are at the end of the economic cycle, when he was once famous because he told us how he had rid us of the threat of turmoil and failure.
More hypocritical, or perhaps forgetful, Brown has warned that there is not enough fear of punishment for bank crime – and there is also "a strong enough message sent that the government will not save institutions that have not put their houses in order". "
I agree; far too many British bankers went undisputed for their behavior by the authorities, unlike in Iceland, where a number of bank managers ended up in jail. It was Brown's government that could have issued warning messages in the UK, but on September 13, 2007, a year before the Lehman Brothers collapsed, his government sent the wrong signal by providing emergency funding to Northern Rock. In February 2008 it was fully nationalized.
The first run of a British bank for more than a century had ended with a government bale-out and the message that such institutions were too big to fail.
On September 29, 2008, just two weeks after Lehman Brothers folded, Brown's government stepped up to make £ 50 billion in mortgages and loans from Bradford & Bingley. There would be more to follow with rescue packages announced on October 13 for RBS, Lloyds TSB (which itself had already become convinced against HBOS) and finally on November 29 the nationalization of RBS.
Did we learn from that period? Well, there have certainly been many questions and abundant recommendations that brought about regulatory changes – with a backlash against the idea that companies might be too big to fail – but it remains to be seen whether a future government would behave differently if they to face the public. fear that Brown and Alistair Darling were involved.
But for most bank settlements and the real financial pain of thousands of people, most Western economies have recovered. The profitability of companies has now returned to peak levels, and although economic growth varies considerably from country to country, it has been generally healthy, with one exception.
Most notable was the turnaround in unemployment, which rose steadily in the UK after the start of the crisis. The external adviser to the Bank of England, David Blanchflower, famously predicted that it would reach three million if the conservative-liberal-democratic coalition continued with what was branded at the time as austerity. But once the public sector began to sell half a million workers who had adopted it in the Blair years, the private sector reacted and we now find jobs at record level and unemployment with a 40-year low.
Since the UK minimum wage is relatively high according to European standards and there is a system for supplementing the benefits, along with a growing labor market and real wage growth, migrant workers continue to be attracted while the shortage of household skills is increasing due to poor education. and falling educational standards.
The nature of the economic problems in the UK and Scotland is changing and some are due to the success of the recovery.
Unfortunately, this apparent recovery masks a number of major challenges. The economist, Ewen Stewart, based in the Scottish city, Believes that our policy has been largely, but not exclusively, transformed as a result of the QE monetary experiment, which, although successful in averting a collapse in the style of the 1930s, has created the perception of clear winners and losers who have provided the populist uprising that the Brexit delivers, Trump and other similar phenomena.
"The winners, particularly older and wealthy assets, have benefited from QE and very low interest rates through asset price review," he says. While losers in the classroom – the savers, the retirees, those with a steady income and benefits – have challenged the organization's view of the failure of the establishment to take responsibility for their generosity, to challenge the political consensus.
"Trump was an extra bet of 200-1 at the start of the Republican primaries and there was no word for BREXIT in the English dictionary," says Stewart. "Now the old certainties are not so sure."
The lesson must be that in order to restore political stability, we must regain economic stability – until the British public and private sectors can return to normal interest rates, & # 39; stronger messages & # 39; about the consequences of a bad judgment our institutions do not get rid of further unrest.