Are we sleepwalking into another financial crisis?

Ten years on from the collapse of Lehman Brothers, experts are warning that lessons from the financial crisis have not been learned.

Gordon Brown has joined a chorus of voices cautioning that the problems surrounding the worst economic downturn since the 1930s remain unresolved - and that another crash is looming.

“I feel we’re sleepwalking into the next crisis,” says the former prime minister, adding that the world is not prepared to deal with another crash due to a breakdown in international cooperation.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

“I think when the next crisis comes, and there will be a future crisis, we’ll find that we neither have the fiscal or monetary room for manoeuvre or the willingness to take that action,” Brown told the BBC, during a series of media interviews marking the anniversary of the start of the previous crash.

Brown also believes the penalties for wrongdoing have not increased sufficiently.

“The fear that bankers will be imprisoned for bad behaviour is not there,” he said to The Guardian. “There has not been a strong enough message sent out that government won’t rescue institutions that haven’t put their houses in order.”

Earlier this week, Bank of England Governor Mark Carney insisted that measures have been taken to bolster the banking system since the 2008 crash. “The system has changed quite fundamentally,” he said.

However, Carney urged the global financial community not to become complacent, especially against the backdrop of rising household debt and the possibility of a no-deal Brexit.

Despite efforts to strengthen the system, finance is still not entirely “fixed”, says Gillian Tett, US managing editor of the Financial Times.

“Non-bank investors have been taking dangerous risks, partly because super-loose monetary policy has made borrowing so cheap,” she writes.

And then there’s the problem of debt. One “remarkable feature of the past decade” is that between 2007 and 2017, the ratio of global debt to GDP jumped from 179% to 217%, Tett says.

So, if another financial crisis is looming, what are the likely triggers?

The Guardian’s economics editor, Larry Elliott, points to a number of potential dangers, including the rising debt levels, the crises in emerging markets such as Turkey and Argentina, and trade wars.

The situation in China also poses a threat, according to many analysts. “Prompt and decisive action” by Beijing helped the global economy through the last recession, but it was achieved through a credit binge and public spending that “dwarfed anything seen in the West”, says Elliott.

“China’s growth remains solid and there are signs of it becoming better balanced, but in some respects, it encapsulates the state of the world ten years after Lehman: it solved one problem but only by creating another: it is awash in debt; its banking industry looks shaky; and it is acutely vulnerable to a full-scale trade war,” he says.