We're past the one-year anniversaries of the fall of Lehman Brothers and the near collapse of AIG, but the question over what we have learned from the crisis is bothering more than a few big economic thinkers and policy makers. Emma Bonino is Vice President of Italy's senate, and she concludes in today's Financial TImes that global leaders seem to have learned very little:
As the saga of platitudes on the financial crisis comes to an end, hard questions now lie on the hands of world leaders. And the number of hands has expanded, with the Group of 20 leading nations set to replace the G7 and G8 as the hub of global economic co-operation. Economic giants, such as China, India and Brazil, will now have a voice in shaping world finance. This, of course, illustrates that decentralisation of economic power in the new world order is an unstoppable development, which may prove to be a positive one if the newcomers behave as responsible stakeholders.
But will all this summitry really make a difference? With the benefit of hindsight we can see the flaws in the financial system that allowed the collapse of Lehman Brothers to bring the global economy to its knees. But will we be able to say we wised up and put in place a better financial system?
Unlikely. So far, all we have really done is change the decision-making body, while the causes and symptoms of the financial crisis remain unchecked. Small and medium-sized banks continue to file for bankruptcy at a worrying pace. We still have not curbed the noxious behaviour of big banks: their social and political importance was enhanced more than scrutinised by the financial fallout after the Lehman disaster. “No more Lehmans” was the motto, cried both by banks and the public. The toxic combination of bank subsidies and bankers’ bonuses have socialised losses and privatised gains.
Read What did we really learn from the financial crisis here.
In the Washington Post, Simon Johnson and James Kwak argue that if we learned anything from the events of a year ago, the time to act is now. "The next couple of months will be crucial in determining the shape of the financial system for decades to come," they write. And they don't hold a lot of confidence in the Obama administration's ability to push through reform:
We have criticized the administration's reform proposals, in particular for not going far enough to address the problem of financial institutions that are "too big to fail." But we support much of what was in the original package, particularly the CFPA and increased regulation of complex financial products. The question now is how hard Obama and Geithner will fight for it.
Financial regulation, like health care reform, has entered the phase where speeches and proposals matter less than arm-twisting and horse-trading on Capitol Hill. With health care, President Obama attempted to go over the heads of Congress, directly to the American people. With financial regulation, that is no longer an option, given the extent to which it has faded from public consciousness.
Read It's Crunch Time: The Fight to Fix the Financial System Comes Down to This here.
Filed under: Regulation, global economic crisis, simon johnson, reform, washington post, James Kwak, bank subsidies, Emma Bonino, financial system overhaul, Consumer Financial Protection Agency, government action, FT