There is a theme to all the discussions of the tenth anniversary of Lehman that are now beginning. It is that we have not really learned anything from the crisis.
What’s the evidence? I hope to reduce things to basics, but I would suggest just three issues make that clear.
The first is that there has been no real reform of banking and related financial services. The strongest evidence of that is the fact that the rating agencies, who played such a vital role in creating the crisis, continue as if unaffected by it, with the same models, and maybe the same people, doing the same job in the same way for the same people. Nothing has changed there.
The ratings agencies. How did they create this crisis?
Near all of the Triple A tranches of those loan pools have continued to pay out and are, well, they’re pretty much all Triple A in fact.
The equity tranches, which were marked as being horribly dodgy, turned out to be horribly dodgy.
This is a failure of the ratings agencies?
Then there’s that failure to understand the most basic bits of Keynesianism:
Which brings me to my second point. This is debt, and private debt in particular. There are places where public debt is an issue, particularly where it is not denominated in the currency in which the government raises its tax, but this is not the major concern in most of the markets at that had much to learn as a result of the crisis, which was not caused by public debt, but by private debt. And as is now widely reported, private debt is now back at 2008 levels. In the UK net saving actually disappeared in 2017. UK house prices may have stabilised, at present, but they are still at record levels. And car finances are heading to be the new sub-prime, both in the UK and the USA. Whilst household incomes have stagnated debt has accumulated as a result of the deliberate policy of the government, in the UK at least, which has been forecasting this trend ever since the financial crisis first eased. It is as if we have learnt nothing at all.
Er,, yes, that’s the point, It’s the solution to the paradox of thrift. They way out of a recession is to reduce the savings rate. Hey, sure, we might disagree, but the Spudtater does at least claim to agree with Keynes. If and when he understands him that is.
That point is at the core of my third point. In 2008 global capitalism nearly failed. It should have done.
No, it didn’t. The banking system looked like it might go bust. The correct answer to which is, as Bagehot pointed out a century and more before, is central bank support.
It was time expired: the model of Hayek and Friedman had ceased to be of value, as it still is.
The Pretence of Knowledge is no longer true? The AMA is not too powerful?
Only tax justice made a lot of progress, to be honest.
Snigger. Only my work has hanged the world!