The Storm after the Calm

PARIS – Could the financial crisis of 2007-2008 happen again? Since the crisis erupted, there has been no shortage of opportunities – in the form of inadequate conclusions and decisions by officials – to nurture one’s anxiety about that prospect.

Over the course of the three G-20 summits held since the crisis, world leaders have agreed to tighten financial regulation slightly, but only for banks, while leaving other market players free of restrictions and scrutiny. As was true before the crisis, no one is monitoring the almost limitless “virtual” market for derivatives, where money moves freely without official rules or contact with the real economy.

And large players have plenty of cash with which to speculate, especially given the United States Federal Reserve’s decision to inundate the world with a sea of liquidity. The result has not been investment in productive assets that boost employment in the US, as the Fed intended, but rather a run-up in global commodity prices and a growing bubble in the housing markets of the major emerging economies.

Simply put, there are no brakes that could stop the global economy from blundering into another financial crisis. Tax havens remain numerous, and their regulation anarchic. The skimpy enforcement measures undertaken by bank regulators since the crisis are nowhere near appropriate to what is at stake. Governments have refused to reinstate the absolute wall of separation between commercial and investment banks, leaving taxpayers on the hook to pay deposit-insurance claims when the bubble-prone financial sector blows up.