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Boom and bust

Christian Odendahl
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piqer: Christian Odendahl
Thursday, 13 September 2018

A Lehman Explainer, 10 Years On

Explaining the Great Financial Crisis that went from "this is bad" to "YIKES!" ten years ago with the failure of Lehman Brothers is very hard. Especially so if you are a journalist and have less than 25.000 words to do it. 

Enter Ben Chu, one of my favorite economic journalists, who's done a very good job. He also gets the nuances right, in my view, where a lot of writing tends to be too general:

According to the International Monetary Fund there had been more than 120 banking crises, involving bad lending, between 1970 and 2007. [The 2008 crisis] was an order of magnitude worse than any of those. The reason was not the scale of the bad lending, but the staggering vulnerability of the global system.

This is exactly right. Bad lending alone cannot explain any of what happened, neither can lobbying by Big Finance in Anglo-Saxon countries to deregulate the system prior to the crisis. 

But ideological capture was perhaps more important. ...There was an ingrained belief in the virtues of light-touch, almost non-existent, regulation. The former Federal Reserve president, Alan Greenspan, deliberately didn’t regulate. The Bank of England downgraded the importance of analysing financial stability after operational independence in 1997. And the old Financial Services Authority – the primary regulator of institutions – was simply incompetent. The mainland Europeans and the Japanese were no better at regulating their own megabanks, despite frequent denunciations of reckless “Anglo-Saxon” finance.

Exactly. The only thing missing in the text, in my view, is how central banks managed to contain the panic by putting up a wall of money, and that taking such powers away from central banks is dangerous, if popular. 

A Lehman Explainer, 10 Years On
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