It is perhaps unfair that the leaders of this crisis – the United States – become stronger ten years later. The United States is indeed stronger than ever, at the height of its economic power. Europe, it tramples.
By Geert Noels
We come closer to the moment when the titles "10 years after Lehman" or "10 years after the fall of Fortis" get the headlines.
In reality, the financial crisis began in August 2007. At that time it was not Fortis or Lehman, but the implosion of a system that had developed unbalanced. The collapse started slowly and then turned into an uncontrollable avalanche.
When the dust finally fell, the rubble was cleared and the time for the analysis followed, followed by committees and large reports, which I also participated in twice in Belgium (Lamfalussy Report in 2009 and High Level Expert Group in 2016).
In general, Belgium is largely influenced by what is happening in the rest of the world. It can take action – it does not stop there – but when a major financial storm comes from abroad, it does not stop at our borders.
As a staunch observer of the financial world in the past decade, I am particularly surprised by three consequences of the crisis and worried about what will happen in the next ten years.
First surprise: "Too big to fall" became global and multi-sectoral
After the crisis, one thing seemed obvious: financial institutions had to reduce their size. The most popular expression during the crisis was "too big to fall" (TB2F). The large systemic banks could not fall and there was no choice but to support them.
But ten years later, these banks became even bigger: Bank of America merged with Merrill Lynch, JP Morgan swamped Chase Manhattan, BNP bought Fortis, and so on. Today, Chinese banks are among the largest financial institutions in the world. And the announced merger between SocGen and Unicredit can fuel Italian problems directly in France.
"Too big to fall" has not only spread over the entire financial world, but has also become a phenomenon that affects most sectors. Technology giants are also called TB2F and are now being treated with velvet gloves by the US Congress.
Nobody remembers the basic principles of capitalism and the importance of fighting against unhealthy monopolies, cartels and oligopolies. Ten years later, small banks become weaker, they have to pay the price of a crisis that they have not caused, and they suffer the consequences of a tailor-made monetary policy for systemic European zombie banks.
TB2F is rather a form of arrogance, with bank managers like Lloyd Blankfein, who claimed to do so " the work of God ".
Today, CEOs of technology companies show the same adequacy. Elon Musk is also infected by the arrogance virus of Silicon Valley: he lets himself be treated out of pure frustration pedophiles "the divers who saved the small Thai footballers prisoners in a cave and sent cascading tweets intended to influence the stock market, as if it were untouchable.
However, the technological geniuses that lose the pedals are just as dangerous as the bankers who speculated with the money of others on a global scale …
The phenomenon is therefore not limited to banks and is now universal. The only way to stop this is to make regulators aware that gigantic companies are harmful to innovation, entrepreneurship and the risk of moral hazard. Because if a TB2F capitalizes, it is still the small taxpayer who will spit in the basin.
Second surprise: central banks are still blowing up
The father of the financial crisis in 2008 is Alan Greenspan: he has blown bubbles in series, has not started with lower prices and has brought the moral hazard to development. From the start of his career, with the crash of 1987, the savings and lending crisis, the implosion of the speculative fund LTCM, the reaction that followed on September 11, 2001, and the active monetary policy to blow up the bubble. to compensate for the explosion of the 2001 technology bubble.
Alan Greenspan was the architect of the derailment of the global financial system and to this day there has been no fundamental break with his reckless style.
Mario Draghi imitated him only with his " whatever it costs Instead of taking preventive measures, central bankers have become more active and demanding, intervening, calming and luring the financial markets and pushing them to take more risks than is recommended by wisdom.
The Quest for Yield was one of the direct causes of the speculative bubble of credits and toxic credits. With a zero rate that has lasted for years, the & # 39; demand for return & # 39; changed to & # 39; hysteria of return & # 39 ;.
As long as central banks are the biggest end-users of bond issues, everything remains under control, but after that the US, Japan and the EU also want to cut those purchases.
The mountain of debts they have created will have to be fed.
Third surprise: the crisis was largely caused by the United States, but they came out stronger, while Europe weakened out!
The financial crisis originated in the United States. With their savings shortfall, their small debts ended up in the basket of (large) European savers and other foreign investors.
The American banking system is living on paper issues, while European banks still have a lot of debts on their own balance sheet. As a result, banks in the United States have no balance problem, in contrast to Europe.
The dynamics of the American economy today form a striking contrast with the rigidity of the European economy.
In 2018, European zombie banks will face an American banking system in excellent health.
The United States emphasized the proper functioning of the market in various sectors and was fortunate that the technology sector started a long period of growth in 2009.
In the meantime, Europe has protected its banks to prevent any form of instability, thereby preventing the process of creative destruction throughout the economy.
The dynamics of the American economy today form a striking contrast with the rigidity of the European economy. On the other hand, Europe hardly encourages countries to implement structural reforms – on the contrary! – continue to shift budgetary and monetary limits.
The consequence of this policy can be seen in the stock market graphs of the past ten years: in comparison with the dynamics of the American stock exchange, European share prices have stuck in the crisis levels.
It is perhaps unfair that the leaders of this crisis – the United States – become stronger ten years later.
The United States is indeed stronger than ever, at the height of its economic power. Only Donald Trump does not seem to have understood it and wants to make "his greatness" to America.
In the past twelve months he has managed to get away from China, Europe, Russia, Canada and Mexico. Her trade war is mainly focused on the old economy, and the boomerang effect of the affected countries will be at the expense of the new economy.
But instead of hoping that the American engine will fail, Europe would do better to implement a recovery policy: dismantling the zombie banks, reforming the euro (and giving some countries the necessary oxygen through a more flexible monetary regime), and above all entrepreneurship encourage instead of the collapse of capitalism.
President Trump is an elephant in a china shop, but with the motivation and vision of the president, the next ten years in Europe can be something like drinking and driving. It will not come as a surprise if I have stubbornly maintained the status quo in this newspaper in ten years.