As we mark the fifth anniversary of Lehman Brothers’ demise and the onset of the global financial crisis, we must ask: what have we learnt? How well have we done? To what extent are the persistent weaknesses in the US and Europe a result of the misdeeds of the financial sector before the crisis, the crisis itself, and the way in which the crisis was managed?
The best – and it’s a great deal – that can be said is that we avoided the worst: another Great Depression. Whether this was a result of the forceful action of governments and central bankers is an exercise in counterfactual history – what would have happened without the massive bailouts we’ll never know for sure.
What we do know is a half decade after the crisis, gross domestic product in many European countries is lower than it was before the crisis, a worse performance than in the Great Depression; that some countries – like Spain and Greece – are in depression; that labour force participation in the US is at a 35 year low; that the income and wealth of most Americans is still markedly lower than it was before the Great Recession; that the banking industry is more concentrated, the financial sector less competitive, that new abuses get uncovered almost every day, that not a single senior banking official has been held accountable, and that the financial sector has succeeded in fighting off many of the reforms that would make it more competitive, more transparent, less risky, and less prone to take advantage of ordinary citizens. We know too that the increase in debts and deficits that resulted from the downturns is now constraining actions in both Europe and the US that would enhance growth and employment.