Opinion and Analysis
Global financial crisis forgotten too soon
Posted Sunday, January 5 2014 at 17:24
The arrival of 2014 marks the sixth year since Lehman Brothers Investment Bank of the United States was declared bankrupt – marking the beginning of what became the global financial meltdown.
Lehman brothers was the first high profile victim of the burst in the housing bubble – the packaging of housing loans (many of dubious quality - sub-prime) into securities that were traded and kept outside the balance sheets of banks in order for bankers to earn their bonuses.
This party of housing bubble allowed the likes of Barclays Bank’s Investment arm, Morgan Stanley and the Bank of America to thrive making their gamblers wealthier.
More than 1000 millionaires were created in the City of London alone – the one square smile financial centre of gleaming skyscrapers in the metropolis – and luxury yachts were going like toys.
But when the bubble burst, poor tax payers were called upon to the rescue the sinking ships, literally at the cost of many lives.
If you are dealing in high-end real estate in the wealthy areas of Nairobi, or Luanda, Accra or Lagos today, 2008 might seem like a distant dream or in some ways, even a blessing.
The opposite is true for the working or lower middle class person living in Spain, Cyprus, Greece or Italy for who the nightmare cannot end soon enough.
Millions remain unemployed, homes have been repossessed and streets are regularly occupied by angry and hungry protesters left to pay for debts owed to mainly German and British banks and Russian Oligarchs.
When the financial crisis hit – and it did so following hikes in energy and food prices – the predictions about the cost to the global economy were dire – and a lot came true.
As banks began to crumble, scores of homes repossessed, unemployment exploded and panic set in, partly because of fear that the banking system was concealing more debt and junk bonds than they were willing to reveal, governments stepped in, and put in place the most unprecedented policies since the re-emergence of neoliberalism.
Banks and their liabilities were nationalised, the banking system around the world was flooded with paper money printed by Central banks of the United States, the United Kingdom, the EU and Japan (the Advanced Economies -AEs) in particular.
The UK pumped into their banking sector the equivalent of 90 per cent of their GDP, the US, 35 per cent of GDP and Germany, 25 per cent of GDP – all amounting to trillions of US dollars equivalent.
These were accompanied by drastic reduction of interest rates, a measure that both sought to stimulate new borrowing as well as gain export competitiveness.
The impact of the crisis and the measures put in place by the AEs to combat it had both immediate and enduring impacts on developing countries in general and Africa in particular.
One such impact was a sharp decline in economic growth in 2008/9 – largely due to a fall in primary commodity prices and capital outflows from countries with significant exposure to international banks.