A new ‘uglier’ cri­sis is around the cor­ner

Daily Record - - NEWS - ANAL­Y­SIS by RICHARD MUR­PHY Pro­fes­sor of Prac­tice in In­ter­na­tional Po­lit­i­cal Econ­omy at City, Univer­sity of Lon­don

ON SEPTEM­BER 15, 2008, the US in­vest­ment bank Lehman Broth­ers col­lapsed and the global fi­nan­cial cri­sis be­gan.

Ten years later, that sit­u­a­tion has not re­ally ended. Worse, many econ­o­mists — me in­cluded — think a new cri­sis may be around the cor­ner.

So what hap­pened, why, and what might hap­pen next time?

Lehman crashed be­cause they had run out of money. Within weeks, the cri­sis had spread.

In Oc­to­ber 2008, then Chan­cel­lor Alis­tair Dar­ling was told Royal Bank of Scot­land were just hours away from also run­ning out of cash. And RBS go­ing down was not an op­tion.

Lehman Broth­ers were not a high street bank, RBS was. So too were Lloyds, HBOS and Bradford & Bin­g­ley. All were head­ing the same way as North­ern Rock, which had col­lapsed a year ear­lier.

Dar­ling could let the banks fail — as the US had let Lehman Broth­ers fail — or bail them out. But the truth was that he had no choice.

If RBS went down, mil­lions of peo­ple in the UK would have had no ac­cess to money.

And that might also have been true of hun­dreds of thou­sands of busi­nesses. If a bank like RBS failed, it was likely oth­ers would go down.

On av­er­age, most Bri­tish house­holds have no more than three days food in stock.

Peo­ple and su­per­mar­kets with­out banks would have meant panic and food ri­ots.

So Dar­ling bailed out the banks, as any re­spon­si­ble Chan­cel­lor would have done.

But most of us have been pay­ing for that ever since. Be­tween 1998 and March 2008, the Gov­ern­ment bor­rowed £186bil­lion to keep the econ­omy go­ing.

From April 2008 to March 2018, the Gov­ern­ment bor­rowed £990bil­lion.

The dif­fer­ence is, roughly, £25,000 a house­hold. You paid through aus­ter­ity. Only two groups were pro­tected. One was pen­sion­ers. And I can­not ar­gue with that. The other was bankers. And that was just wrong. Bankers ben­e­fited through quan­ti­ta­tive eas­ing, jar­gon for the Gov­ern­ment buy­ing back their own debt.

And al­most all the ben­e­fit of that has gone to bankers who have used that money to push up house prices, share prices, and maybe even com­mod­ity prices in which they trade.

The re­sult has been most banks have re­cov­ered to be se­ri­ously prof­itable again — and for bankers, un­like al­most ev­ery­one else, the pay rises and bonuses have flowed.

And that is de­spite — let’s be ab­so­lutely clear about this — the bankers caus­ing the crash.

They did this by reck­less lend­ing, mainly for mort­gages that of­ten ex­ceeded the value of the houses they were fund­ing to buy. It over­heated the econ­omy and the bub­ble the bankers cre­ated burst.

Yet they seem to have learned noth­ing. Right now, there is as much lend­ing to the UK pub­lic com­pared to our in­come as there was in 2008.

The re­sult is we are al­most cer­tainly head­ing for an­other crash. But this time, the Gov­ern­ment can­not slash in­ter­est rates. So, this crash might be uglier.

COL­LAPSE Lehman Broth­ers bank in the US crashed in 2008

POVERTY The bank cri­sis left homes in Amer­ica aban­doned

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