Canary Wharf financial district in London. Source: Quartz.
Ten years after the financial crisis of 2008, the U.S. government has failed to do anything necessary to avoid a new crisis. I just read an article in the London Review of Books that says that the U.K. government’s policies are just as bad.
Like the U.S.-based banks, the British banks engaged in financial engineering that was supposed to create high profit on completely safe investments—which, as experience proved, couldn’t be done.
The British government had to bail out the banking system in order to save the economy. There probably was no alternative to that. But it then proceeded to put things back just the way they were before.
John Lanchester, the LRB writer, said there was no attempt at “ring fencing”—what we Americans call firewalls—to split up investment banks, which speculated on the financial markets, and retail banks, which granted small business loans, home mortgages and other services to the real economy.
The UK, like the US, engaged in “quantitative easing”—injection of money into the banking system through buying bonds. The basic idea was that if banks and corporations had more money to invest, they would invest more, and the economy would grow.
This didn’t happen. Instead banks and corporations bid up the prices of existing financial assets and real estate, which added to the wealth of the already rich.
Ordinary Britons faced austerity. Their government cut back on the social safety net and public services. British life expectancy, like American life expectancy, has actually fallen.
The British, like us Americans, had 10 years to fix their financial system. Like us, they wasted the opportunity. Now it may be too late to avert the next crash—even if the UK and US governments wanted to act.
LINK
After the Fall: Ten Years After the Crash by John Lanchester for the London Review of Books. Well worth reading in detail. Hat tip to Steve B.
Tags: Banking, Finance, Financial Crisis, Financial Regulation, Great Recession, Speculation, United Kingdom
July 6, 2018 at 11:26 am |
“and the economy would grow. This didn’t happen.” Well, yes it did; slowly and weakly, but the economy did recover.
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July 6, 2018 at 12:43 pm |
What didn’t happen was a surge of economic growth resulting from the banking system’s putting its new cash into productive investment.
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July 6, 2018 at 2:17 pm |
What didn’t happen was a more serious economic collapse–depression–which might well have happened if the FED had not acted. When the economy flounders, invest! Congress proposed the opposite.
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July 6, 2018 at 2:39 pm |
The immediate action to rescue the banks may be have been necessary. The eight-year failure to reform the system or protect the public interest was not.
I hope readers of this post will click on the link to the LRB article. John Lanchester goes into this with great insight.
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July 6, 2018 at 2:41 pm |
I would say rather that meaningful action was taken, much of which has now been rescinded.
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July 6, 2018 at 11:42 am |
Reblogged this on 61chrissterry and commented:
Why is it that when there are crises of any nature as the Banking crisis, the various local authorities with Children’s services and a multitude of other and there is the quote, ‘lessons will be learnt’ why is it these lessons are never learnt.
Is it because additional finance may be required, local authorities and Bankers lie, there is no willingness to learn or many other reasons?
What ever is the reason or reasons there should be some system to ensure the lessons have been learnt and if not people should be made aqccountable.
If there was accountability and this was upheld in Law, then, I believe there will be change for the better, so why is there no effort to bring in such a law. Is it because those that are responsible to create laws are more than likely the people most guilty of not addressing accountability, Yes, the Government, Ministers and MPs.
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July 6, 2018 at 11:48 am |
Usual story – socialise risk, privatise profit.
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