How could we allow another financial crisis when we should have learned our lessons from the last one? Story by Chris Skinner.

Last week marked 10 years since the financial crisis hit. On 9 August 2007, BNP Paribas froze three of its American funds, the first in a chain of events that would lead to the biggest recession since the Great Depression. These funds were tied to American subprime mortgages and the freeze was the first public acknowledgment that even the experts – even banks themselves – couldn’t figure out what these funds were built upon.

This led to a knock-on effect that led to the collapse of Bear Stearns (22 June 2007) and then the big one, Lehman Brothers (15 September 2008). I remember the collapse of Lehman Brothers well, as the news spread on the Sunday, just as Sibos was kicking off in Vienna. The result was that half the bankers flew out of Vienna on the Monday and Sibos was a shadow of its normal self. That’s when I would mark the real start of the financial crisis.

Some others would mark the crisis as having started on 14 September 2007, which is when Northern Rock collapsed. You name your day. Since then, America has recovered well thanks to TARP (Troubled Asset Relief Program) and the UK thanks to QE (Quantitative Easing), but Europe is struggling. Italian, Spanish, Greek and Portuguese banks and economies have flatlined for the past few years, and there are concerns over the general stability of Europe as a whole post-Brexit.

Then there’s the growing concern of a second financial crisis. The Bank of England called a concern over consumer debt at the end of July, and that there may be a second crisis bubbling. This one in the UK wouldn’t be as big as the last however, as the 2008 crisis required a bailout of over £1tn. £200bn seems less significant in contrast. However, the fact that unsecured consumer debt in the UK and US has exploded to levels above 2008 should be a concern, as is shadow banking in China and the challenge of sustaining two decades of strong growth.

It makes you wonder how we could allow another financial crisis when we should have learnt our lessons from the last one, but then America did repeal Glass-Steagall that was meant to have fixed the Great Depression crisis, but instead then led to another one. We never learn. However, some things have happened that should be encouraging, such as financial regulators working together globally for the first time ever.

Equally, the thing that resonates the most for me is that the year the crisis hit in 2007 is when cloud, the iPhone and the revolution in open sourced technologies hit. It has taken a decade to mature, but the whole fintech market has risen thanks to these technologies. In other words, we had a perfect storm of new technologies enabling a revolution in finance while financial firms were imploding due to imperfect decision making.

Interesting times indeed.

Anyway, for those who like to remember, here are links to my favourite three articles that appeared, talking about the crisis:

 

READ NEXT: Could the 2009 subprime mortgage crisis have been avoided with blockchain?

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by corlaffra, Shutterstock.com

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

Leave a Comment