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Ten Years After the Global Financial Crisis: Causes, Outcomes, Lessons Learnt

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Ten Years After the Global Financial Crisis: Causes, Outcomes, Lessons Learnt Ten Years After the Global Financial Crisis: Causes, Outcomes, Lessons Learnt Angela Antetomaso Brunello Rosa Nouriel Roubini SRC Special Paper No 15 September 2018 ISSN 2055-0375 This paper is published as part of the Systemic Risk Centre’s Special Paper Series. The support of the Economic and Social Research Council (ESRC) in funding the SRC is gratefully acknowledged [grant number ES/K002309/1]. Angela Antetomaso, ClassCNBC Brunello Rosa, Rosa & Roubini Associates, Department of International Politics & the City Political Economy Research Centre at City, University of London and Systemic Risk Centre, London School of Economics and Political Science Nouriel Roubini, Rosa & Roubini Associates, Roubini Macro Associates LLC and Stern School of Business, New York University Published by Systemic Risk Centre The London School of Economics and Political Science Houghton Street London WC2A 2AE All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior permission in writing of the publisher nor be issued to the public or circulated in any form other than that in which it is published. Requests for permission to reproduce any article or part of the Working Paper should be sent to the editor at the above address. © Angela Antetomaso, Brunello Rosa and Nouriel Roubini, submitted 2018 Ten Years After the Global Financial Crisis: Causes, Outcomes, Lessons Learnt An Interview of Nouriel Roubini and Brunello Rosa by Angela Antetomaso 29 August 2018 Ten Years After the Global Financial Crisis: Causes, Outcomes, Lessons Learnt An Interview of Nouriel Roubini and Brunello Rosa by Angela Antetomaso 29 August 2018 Page | 2 1. Introduction: Ten Years After The Global Financial Crisis .......................................................... Page 3 2. The Global Financial Crisis In 2008 .................................................................................................... 3 3. Who Was Responsible For The Global Financial Crisis ....................................................................... 7 5. The Policy Response: Too Much Monetary, Too Little Fiscal .............................................................. 9 6. The Socio-Political Consequences Of the Global Financial Crisis ........................................................ 12 7. Lessons Learned (Or Not) .................................................................................................................. 14 8. The Future: Is Another Global Financial Crisis Around the Corner? …………...........................……………. 15 9. Authors ............................................................................................................................................ 19 Rosa & Roubini Associates Ltd is a private limited company registered in England and Wales (Registration number: 10975116) with registered office at 118 Pall Mall, St. James’s, London SW1Y 5ED, United Kingdom. For information about Rosa&Roubini Associates, please send an email to [email protected] or call +44 (0)20 7101 0718. Analyst Certification: We, Nouriel Roubini, Brunello Rosa and Angela Antetomaso, hereby certify that all the views expressed in this report reflect our personal opinion, which has not been influenced by considerations of Rosa & Roubini Associates’ business, nor by personal or client relationships. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the views expressed in this report. Disclaimer: All material presented in this report is provided by Rosa & Roubini Associates-Limited for informational purposes only and is not to be used or considered as an offer or a solicitation to sell or to buy, or subscribe for securities, investment products or other financial instruments. Rosa & Roubini Associates Limited does not conduct “investment research” as defined in the FCA Conduct of Business Sourcebook (COBS) section 12 nor does it provide “advice about securities” as defined in the Regulation of Investment Advisors by the U.S. SEC. Rosa & Roubini Associates Limited is not regulated by the FCA, SEC or by any other regulatory body. Nothing in this report shall be deemed to constitute financial or other professional advice in any way, and under no circumstances shall we be liable for any direct or indirect losses, costs or expenses nor for any loss of profit that results from the content of this report or any material in it or website links or references embedded within it. The price and value of financial instruments, securities and investment products referred to in this research and the income from them may fluctuate. Past performance and forecasts should not be treated as a reliable guide of future performance or results; future returns are not guaranteed; and a loss of original capital may occur. This research is based on current public information that Rosa & Roubini Associates considers reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. Rosa & Roubini Associates, its contributors, partners and employees make no representation about the completeness or accuracy of the data, calculations, information or opinions contained in this report. Rosa & Roubini Associates has an internal policy designed to minimize the risk of receiving or misusing confidential or potentially material non-public information. We seek to update our research as appropriate, but the large majority of reports are published at irregular intervals as appropriate in the author's judgment. The information, opinions, estimates and forecasts contained herein are as of the date hereof and may be changed without prior notification. This research is for our clients only and is disseminated and available to all clients simultaneously through electronic publication. Rosa & Roubini Associates is not responsible for the redistribution of our research by third party aggregators. This report is not directed to you if Rosa & Roubini Associates is barred from doing so in your jurisdiction. This report and its content cannot be copied, redistributed or reproduced in part or whole without Rosa & Roubini Associates’ written permission. www.rosa-roubini-associates.com © Rosa&Roubini Associates 2018 - All Rights Reserved. No duplication, reproduction, transmission or redistribution of this document and its content, either in whole or in part, is by any means permitted without prior written consent of Rosa&Roubini Associates Limited. 1. Introduction: Ten Years After The Global Financial Crisis September 15th, 2008: financial services firm Lehman Brothers files for Chapter 11 bankruptcy protection, marking the largest default in U.S. history and the beginning of the Global Financial Crisis (GFC), the most severe episode of financial instability and economic contraction since the Great Depressions of the 1930s. From the end of 2006/early 2007 – when the first elements of the crisis started to emerge, until September 2008, the distress was mostly confined to the financial sector, with little impact on real economic activity. Page | 3 After the Lehman’s collapse, the crisis becomes truly global: a number of economies enter a severe recession in 2009, from which they will emerge only a number of years later profoundly transformed. The consequences of 2008 GFC will go far beyond the financial industry and the real economy: new political movements emerge, and a world-wide retreat of globalization begins, in a process that is still ongoing and whose eventual outcome is still unclear. September 15th, 2018: ten years after Lehman’s collapse, we analyse once again what went wrong and what lessons have been learnt to prevent another crisis of similar proportions to emerge again. We discuss this with Nouriel Roubini, one of the few economists widely credited for having predicted that crisis and how it would have unfolded. And with Brunello Rosa, a scholar of Minsky’s financial instability hypothesis and of financial fragility theories since the late 1990s, when they were still considered highly heterodox. Nouriel Roubini and Brunello Rosa have been closely working together for the last few years and are now business partners in their new venture. Angela Antetomaso, a long-standing financial TV Anchor, who has worked at CNN, Bloomberg and currently at CNBC, interviews Nouriel and Brunello on occasion of the 10th anniversary of the Global Financial Crisis. 2. The Global Financial Crisis of 2008 Nouriel, what was your experience of the collapse of Lehman Brothers, what are your memories of that day, of that moment? I was following the financial crisis in real time, day by day, and writing about it as it unfolded. I remember that day, watching TV and seeing the collapse of Lehman and the panic in financial markets. The interpretation of that day has often been that it was because we let Lehman collapse that the global financial crisis became severe. But to me that view has the causality of the situation reversed: we reached the Lehman collapse only after the subprime bust, the housing bust, the banks having had hundreds of billions of losses. Bear Stern went down, Fannie and Freddie Mac, were bust, AIG was bust - so it is not as if Lehman was the cause of what happened, rather Lehman was the peak of that more generalized crisis. Its crash was a critical moment in some ways, but a lot of the economic and financial damage had already occurred previously. Thinking that if only Lehman had been bailed out then everything
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