Hannes Breustedt and Georg Ismar –
The bankers left the New York skyscraper carrying their belongings in hastily packed boxes. Pictures of distraught stockbrokers made the rounds. Investment banks like Lehman Brothers were always “too big to fall,” but in this case no state bailout occurred.
Ten years ago, the collapse of Lehman Brothers shook financial markets and brought the global economy to the brink of collapse. Politicians and central banks rushed to save other banks and put the brakes on an economic downturn using hundreds of billions of emergency credits and interest rate cuts.
The worst was prevented, but the price was high. A decade later the financial crisis still has a social and political impact, and the question looms: Are we better prepared today?
The crisis that was touched off when Lehman Brothers failed on September 15, 2008 reached beyond the world of finance and cost millions of people their jobs.
The result had deep societal consequences owing to the fact that while the bank managers responsible barely faced prosecution, the general population footed the bill, and anger fuelled the rise of radical political currents.
Lehman Brothers was not a very large bank, but with many subsidiaries and special purpose entities, it was typical of the thicket of the finance system in which weak real estate loans were packaged into securities. At the time such securities, with their dubious seals of approval from major rating agencies, were sold worldwide to investors.
As prices in the US housing market began to sink and the mortgages of the hopelessly over-indebted homeowners became worthless, these international interdependencies caused a conflagration. The worst financial crisis since the great depression of the 1930s was under way.
The crisis soon spilled over from the private sector into public finance. Particularly troubling were upheavals in Greece, where public debt exploded to over 130 per cent of gross domestic product.
In Germany, Chancellor Angela Merkel and finance minister Peer Steinbrueck declared on October 5, 2008 that Germans’ savings were safe. It was a somewhat clumsily communicated guarantee aimed at preventing mass withdrawals of savings and a collapse of the financial sector.
Merkel maintained that the actions taken were not in the interest of the banks, but in the interest of the people. Many citizens felt the opposite.
“If the euro fails, Europe fails,” became her motto and more rescue packages followed.
The situation created fertile ground for the rise of the political party Alternative for Germany (AfD). For many Germans it embodied the uncertainty after the financial crisis.
In the United States the consequences of the crisis are credited with paving the way for radical political movements such as the Tea Party and Occupy Wall Street.
An analysis by Christoph Trebesch and Manuel Funke of the Kiel Institute for the World Economy concludes that right-wing parties generally were strengthened by the financial crisis. Beyond the AfD in Germany, there is the right-wing League in Italy, the Norwegian Progress Party and the Finns Party in Finland, which are “children of financial crises,” Trebesch and Funke write. They have all had a disruptive effect on political systems.
“Two-party systems that have been stable for decades have been swept away, long-ruling parties have suddenly had to cope with single-digit election results, while populist parties have received an influx of political support,” is the core of their thesis.
Ten years later there is doubt that the financial sector is protected from a similar crisis. In the US, the Trump administration is loosening Obama-era laws adopted in the aftermath of the crisis. — dpa