Ten Years Later: The Crisis Has (Not) Taught Us So Much

A growing debt-to-GDP ratio of many countries, high credit indebtedness of individuals and households, insufficiently dynamic development of small businesses that was supposed to generate employment growth, advocating for austerity, even when such an approach is detrimental, the political divergence of decision-makers who were supposed to lead to any kind of new regulation and general the state of hopelessness – all this is a picture of today’s society, exactly a decade after the outbreak of the biggest economic crisis after the Second World War, the Global Economic Crisis, that appeared as the consequence of the preceding financial crisis, and that has started on September 15th 2018 with the fall of Lehman Brothers.

The rhetoric of the majority of European politicians, especially from those from the center, has split many concerns on the subject, mostly concluding that the financial markets had only to perform well and that the rest of the world would see the stabilization after a while. However, the financial crisis has rapidly turned into a more solemn international economic disaster since the crisis of 1929, as it affected the real economy by distressing credit and led to sharp weakening in GDP growth of the countries with the strongest economies by domino effect. As it became visible, the leaders of the most powerful countries at that time met regularly at G20 meeting, declaring big determinations, promising nothing would be the same.

More and more people nowadays are understanding that the numerous crises we face are connected to the perpetuity of the supremacy of finance and that the society is no longer able to stand the expenses of its overindulgences. Global population clearly understands that economic growth has certain boundaries, that the unsustainable levels of dissimilarity we are experiencing are discordant with a society living in peace with it and that the climate problem is a major problem for our future. For example, if one country wants their trade imbalances to be sustainable, and the other surpluses to persist, absolute freedom of capital actions is needed, which is why it is impossible to seriously regulate finance without shifting the ladder and global economic scheme at the same time.

As information and technology move across borders without factual change of the ownership, countries are led to focus and position themselves in different parts of the productive system. This situation does not simply create interdependence, which, as a consequence, generates hierarchy. The latter financial crisis has determined, like the previous ones, by obtaining time so that nothing essential changes in the end except the announcement that any further crisis will probably be more threatening as the finance gained a specific role in the world economy since it now helps to cover the trade disproportions.

Correspondingly, the more significant these are, the more the financial imbalances would exist, which causes exhaustion of even world’s most powerful financial industries by allowing the deficits of some and the extras of others to grow faster. Similarly, any kind of effort at financial corsetry can only lead to the downfall of the global trading system, as it happened few months after the emergence of crisis when the disruption of the financial system led to the distraction of trade flows. For example, taking a look at the fact that the global economic machine yields to satisfy the need for consumption of households in the United States has something captivating about it, as brings together the way in which ancient Rome acquired the surplus of wheat produced in other Mediterranean areas in order to feed each day its population of one million.

Apart from that, the situation in the US also reflects something from not that much late history when the president Theodore Roosevelt has promised to move the merchants out of the temple while the American Congress approved a financial guideline named the Glass-Steagall Act. That specific financial act detached investment banks taking huge risks from deposit banks, beneficial and needed to the rest of the economy, as the president understood that this was the only method to evade a thoughtful catastrophe in the US. When the administration of Bill Clinton annulled the Glass-Steagall Act in 1999 it appeared that the fears of the Great Depression were forgotten. However, not so many people denounced it when the crisis occurred in 2008, while later the administration of the president Barack Obama made not enough effort in order to accomplish better financial results.

The situation in Europe was characterized by the regulation of bank under the policies of the European Central Bank, as they were compulsory to rise their own assets, to reinforce the barriers that protect them and to contribute to a joint reserve fund that could be used in case of bankruptcy. Since the world economic crisis many leading central banks were required to make financial stabilization a priority and therefore ECB handled a sovereign debt crisis that led it to reconsideration the broadcast of monetary strategy within the Eurozone. Besides that, the ECB initiated the process of massive refurbishments of state debt in the spring of 2015 by buying up to 80 billion euros each month until this year, while its zero interest rate policy is still in power.

When the crisis occurred, the banks themselves had become unable to assess their own losses. Some particular financial labels they had designed during the years of enthusiasm had become unconceivable to their own specialists, while the insurance taken out to cover their fatalities was misleading because the insurers themselves could became insolvent at any time. The biggest US banks that had been the machines of securitization and speculation could organize much more recovering than some of those small regional banks in Europe that had borrowed to individuals and businesses, which had been cautious not to gamble on the financial markets, and yet had to face the losses connected with the global crisis. Due to money creation over the past decade the expansion in liquidity has supported the financial markets and has directed to an increase in global stock market indices, as some of them have augmented roughly four times between 2009 and 2018.

Avoiding austerity was the key priority for investors who are currently driving for the regulation to be resolved while the banking system is both more cortrolled and because of the boost of some banks even more dangerous. That boost led not only to the lack of necessary reforms achieved, but also to the occurence of shadow banking as the financial actors were tryinh to avoid the regulations by multiplyig operations off balance sheet operations, as those subsidiaries were not subject to regulation. Today’s circumstances in the financial world are very similar to the situation that existed a decade and a half ago. The situation on financial markets is still dynamic as the stock indexes and real estate prices have exceeded the peaks they had reached before the crisis. The situation with the debt of households has not improved significantly, whic means that the solvency of large majority of population did not improve. This is also the case with small business that is shut out in the short term or is experiencing great difficulties and limitations.

Awareness of the crisis and regulatory needs has, to a greater extent, caused new fears that consequently contribute to the limited expansion of business, the insufficiently rapid dynamics of reducing unemployment and hopelessness, which many people find difficult to oppose for entrepreneurial steps. The decennial story of the crisis has produced more rhetoric that has served political subjects around the world for internal accounts with non-emigrants who are declared responsible for the emergence of a crisis situation even in segments where it is obvious that it is a product of a number of external factors to which no government has any of the countries whose banking system was internationally networked could not be affected.

Awareness of the crisis and the detrimental consequences of the policy that preceded the outbreak of the crisis did not produce a change, only diminished the possibility that political entities whose attitudes are united in finding a common solution, since the next steps are nevertheless transposed into the domain of decision-making by national governments, reduced chance of being properly reacted if one does not want to repeat a similar scenario.

There are not so many people who, ten years later, can claim that the crisis is behind us, especially those who do not feel any kind of relief in their financial situation, whether they are measuring the share of loans in their wages or they are tracking stimulus programs that remain at all levels as anti-crisis measures. Not only are there preconditions for the same terrible scenario to be repeated today, but the consequences would be much more dangerous.

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