A decade ago, in September 2008, the world entered a deep financial crisis, which brought the global economy to the brink of a collapse.
It started when the US housing bubble burst, leading to a credit crunch that spread rapidly overseas.
Global businesses, ranging from banks to carmakers, required bailouts and the global economy slid into a recession.
The collapse of financial services firm Lehman Brothers on September 15, 2008 triggered the meltdown of the financial markets in the United States, but the contagion soon engulfed many global economies.
At the centre of the crisis was skyrocketing levels of debt, facilitated through the banks’ use of financial products such as collateralised debt obligations (CDOs) - whose value was based on another security.
Stuffed to the gills with bad mortgages, it sustained heavy losses as housing prices dropped, and imploded after multiple acquisition deals fell through.
The collapse set off a chain reaction of bank failures that required unprecedented federal action to unwind.
It is worth looking again at the scale of the crisis. The human cost of the financial crisis was the obliteration of more than 7mn jobs across the world since the second quarter of 2008.
The crisis required a write-down of over $2tn from financial institutions alone, while the lost growth resulting from the crisis and ensuing recession has been estimated at over $10tn.
2009 became the first year on record where global GDP contracted in real terms. The process of responding to the crisis, the subsequent deep recession and the impacts on governance of the global financial system – and the eurozone in particular – took the better part of the decade to implement before there was a reliable return to growth across the US and Europe.
New economic challenges have arisen over the last decade. Advanced economies’ importance in the global economy has shrunk dramatically, from 69% to 60% of global GDP.
Technology has created new markets for data, while threatening mass unemployment and an end to a manufacturing-based development model.
Meanwhile, the demographic transition of advanced economies has continued apace as their populations age, leading to strains on pensions and healthcare systems.
It is 10 years since the global financial upheaval, but did we learn much from the most significant financial and economic upheaval since the Great Depression?
A decade later, many economists believe there will never be a return to the old ‘normal’.
Bank of England Governor Mark Carney told the BBC recently that risks still remain for both the global economy and the UK although regulators have done a lot to fix the global financial system.
He said China is at the “top of the list. And in the UK, a “no deal” Brexit could bring about a housing market crash and a surge in the UK’s unemployment rate and “could be as catastrophic as the financial crisis” for the economy.
Carney said regulators around the world needed to remain vigilant and that any fragmentation of global standards to try and gain competitive advantage would be dangerous.
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