Ten Years After the Crisis: The Fallout and the Future
A look back at the measures global governments and institutions took to stabilize the 2008 financial crisis and the effect they may have on future events.
- Alistair Darling, Former Chancellor of the Exchequer
- Christopher Dodd, Former US Senator and co-author of the Dodd-Frank Wall Street Reform and Consumer Protection Act
- Ann Pettifor, Director of Policy Research, PRIME
- Moderator: Francesco Guerrera, Head of International, Dow Jones Media Group
Governments had to and have to act
Responding to questions as to whether regulation has gone too far, Christopher Dodd, co-author of the Dodd-Frank Act, said it was crucial for the government to take action. “If the question is should we not have done anything at all, I would say in a resounding fashion: absolutely not.” On the other side of the question, Ann Pettifor, a self-described Keynesian, believes the measures taken since the crisis have fallen short. “Banking’s not like any other industry. It is a public utility. It’s like the sanitation system,” she said, which is “why it should be much more heavily regulated and in some cases probably even nationalized.”
From his perspective, Alistair Darling believes that in times of acute crisis, “at the end of the day the government is the only one that can stand behind all that.” In illustrating the role that policy makers play in managing the crisis, Darling revealed that in October 2008 the Royal Bank of Scotland came within three hours of running out of money. “If it had gone down, it would have brought down certainly the rest of the British banks and I suspect others in Europe and America as well.”
It’s a different world today
But the world has changed immensely in the past ten years, and the panelists see the financial crisis as largely responsible. Since the crisis, growth in GDP and a booming financial sector have led to increased corporate profits, but at the same time profits have outpaced wage growth. Pettifor noted “That’s why people are angry.” This explains the rise of populism and nationalism. “We’re finding countries looking towards strong men to give them protection from these global market forces which they perceive to be beyond their control and they're right,” she said.
From Dodd’s view, populism was born of many reasons, such as innovation and technology which caused many to lose their jobs. “But there was a tremendous reaction to this in the US. When they heard that at 1:30 in the morning, the Bush administration sent me a bill in anticipation of the TARP legislation and said ‘Give me $700 billion’ and no court or regulator could intervene. The sense of outrage in the country was overwhelming.”
Looking into the future, the panel identified a number of new threats that could spur the next financial crisis. Short memories are one of many. Darling thinks the loss of institutional knowledge, caused by the retirement of those who managed through the last crisis, is a key risk. “There will come a new generation of people, if we don't watch ourselves, who don’t remember what happened and who mightn't believe that yes it's too good to be true and [believe] you can make money,” he warned.
Pettifor said the view on risk has to adapt to how the market has evolved. “The traditional banking sector, even though it is much bigger and much more profitable than it was before the crisis, is really now almost irrelevant to the next financial crisis. For me now the real problem is the shadow banking sector, which is much, much bigger,” she said.
We need a roadmap
The panel’s message was realistic, but not pessimistic. It is vital to manage the monetary system and put better rules in place before the next crisis hits. Dodd explained that we need a roadmap and early warning systems to gather data before we find ourselves on the brink of disaster.
Globalization can be valuable, Dodd said, mentioning that his father had been a prosecutor at the Nuremburg trials, a time when international institutions set a moral example. Bretton Woods kept the international financial system relatively stable until its collapse in the 1970s. In a sense, we need to go back to that again – not just to ensure peace, but also for economic security.
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The Troubled Asset Relief Program (TARP) was a group of programs created and run by the US Treasury to stabilize the country’s financial system, restore economic growth, and mitigate foreclosures in the wake of the 2008 financial crisis. TARP sought to achieve these targets by purchasing troubled companies’ assets and equity.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of US financial reform legislation passed by the Obama administration in 2010 as a response to the financial crisis of 2008.
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually or quarterly.
Shadow banking refers to lending and other financial activities conducted by unregulated institutions or under unregulated conditions.
The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference (July 1–22, 1944), was the gathering of 730 delegates from all Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, to regulate the international monetary systems after the conclusion of World War II.
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