Financial Crisis

The next crisis is going to be due to debt. 2000 saw the dot-com bubble, and the Great Recession was due to subprime housing securitization. This time is different. A […]

It was becoming obvious at about this time in 2007 that something very bad was happening in America’s banks. Air was rushing out of the US housing market bubble and the country’s banks, mortgage providers and brokers were bearing the brunt of the blast.

One of the biggest sub-prime lenders in the US, New Century Financial, had already filed for bankruptcy. Bear Stearns would soon bail out one of its hedge funds that was exposed to the US housing market to the tune of $3.2bn. The bank would be forced to liquidate it a month later. As we now know, what started in the US would spread around the world.

Part of the crisis response has been to rewrite the global bank rulebook. Much of this has been sensible. This has made them safer to the kind of capital flight that did for them in the crisis. Big capital buffers should mean that the largest banks will not need to turn to taxpayers if there is a repeat of the conditions of the financial crisis.

It is a decade since the start of the financial crisis. What started in the US housing market later engulfed the global economy and is having an enduring legacy on the UK – perhaps most notably on savers.

After nearly seven years from the end of the deepest global financial crisis of the postwar period, growth continues to be slow in advanced countries and falling in most emerging market economies. There is even the risk that the world may be drifting toward a new global financial crisis and even secular stagnation. These are the issues examined in this paper.

D. Salvatore, Distinguished Professor of Economics and Director of the Global Economic Policy Center at Fordham University (New York), will examine the prospects and policies for United States, Europe, Japan, China , India, Brazil and Russia to overcome recession and return to rapid growth.