Five years after the collapse of Lehman Brothers triggered the largest global financial crisis since the Great Depression, the world’s financial system remains dangerous and dysfunctional. Worse, despite years of debate, no consensus about the nature of the system’s problems – much less how to fix them – has emerged.
Failed states used to be largely the preserve of the developing world, where the institutions of democracy do not have deep roots. But given the extent to which the Brexit campaign has undermined Britain's institutions through lies, it is reasonable to worry that the country will soon come to resemble a tinpot dictatorship.
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STANFORD – Five years after the collapse of Lehman Brothers triggered the largest global financial crisis since the Great Depression, outsize banking sectors have left economies shattered in Ireland, Iceland, and Cyprus. Banks in Italy, Spain, and elsewhere are not lending enough. China’s credit binge is turning into a bust. In short, the world’s financial system remains dangerous and dysfunctional.
Worse, despite years of debate, no consensus about the nature of the financial system’s problems – much less how to fix them – has emerged. And that appears to reflect the banks’ political power.
For example, Vince Cable, the United Kingdom’s business secretary, recently accused Bank of England regulators – whom he called “capital Taliban” – of holding back the country’s economic recovery by imposing excessive burdens on banks. Cable appears to believe the banks’ lobbyists when they claim that lending and growth would suffer if banks were forced to “hold more capital.”
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