Blogs

Five Years on from Lehman: The More Things Change, the More They Stay the Same

The global financial crisis of 2008 created the worst recession in the developed world since the Great Depression. Governments had to respond decisively on a large scale to contain the destructive impact of a massive debt deflation. Still, large financial institutions such as American International Group, Bear Stearns, Lehman Brothers, Countrywide Financial, Washington Mutual, Wachovia, Northern Rock, and Landsbanki collapsed. Thousands of small-to-medium financial institutions failed or needed to be rescued. Millions of households lost their retirement savings, jobs, houses, and communities. And numerous non-financial businesses closed. Read more

A Model’s Crisis

By Institute economists Elira Karaja and Elham Saeidinezhad

Friedrich von Hayek described the economist’s task as demonstrating how little we really know about what we imagine we can design.

The fifth anniversary of the start of the most severe financial crisis since the Great Depression has us reflecting on how little we were able to predict from macroeconomic models – the very models we use to capture business cycle dynamics. While being careful not to completely overturn the mainstream body of economics, the very fact that they could not predict the most important economic phenomenon in nearly a century requires us to question the way these models perform. Read more

Five Years after the Crisis, Economics Still Needs to Change

Nearly five years ago, when we were facing what appeared to be the collapse of the financial system and mainstream economic theory, there was the distinct feeling that we were on the verge of an epochal change.

The spectacular failure not only of the predominant type of capitalism but also of its very legal and social structure and theoretical background gave many the hope of a new dawn. Similar to what happened in the aftermath of the Great Depression, there was the expectation that the role of the financial sector would be redefined and that economic theory would be reshaped. Read more

Lehman Was Not Alone – Measuring System Risk in the 2008 Crisis

On September 15, 2008, Lehman Brothers filed for bankruptcy and ushered in the worst part of the recent financial crisis. Today, we still discuss whether taxpayer money should have been used to rescue Lehman. My colleagues at NYU and I have developed measures of systemic risk, and this fifth anniversary affords us a good opportunity to look at what these measures would have indicated to Treasury Secretary Paulsen if they had been available at that time.

The answer is quite surprising. Read more

Bankers Will Be Let Off the Hook If We Don't Start to Take Ourselves Seriously

Originally appeared in the Irish Independent

If the banking crisis was a child it would have started school this week. Five years later there is no comprehensive public reporting of the circumstances leading up to the crisis, and the decisions taken immediately afterwards.

Three reports have been written, one in fact a legal inquiry, but these haven't really gotten to the nitty gritty of who knew what – and when – and why they decided as they did. Read more

Adair Turner on Credit, Money, and Leverage

Check out today's Financial Times, where Gillian Tett picked up on Institute Senior Fellow Adair Turner's recent speech to the Stockholm School of Economics: Read more

Current Account Rebalancing Since the Crisis

In the aftermath of the 2008 crisis, renewed attention has been directed to the accumulation and persistence of current account imbalances between countries and to the large role the trade deficit of the United States has played in this area since the 1980s.

Although economists like Wynne Godley had been concerned about the long-run sustainability of this trend before 2008, the need for “rebalancing” trade has emerged as an important part of the post-crisis economic debate. Why is this? Read more

The Next Financial Crisis

Originally appeared in the LA Times

Five years ago, this week, the world of finance and economics changed forever.

At least that's the story.

It started with a sad milestone in Wall Street history: the fall of the House of Lehman. Read more

The End of 'Financialization'

Originally appeared at the Fung Global Institute

The failure of Lehman Brothers on 15 September 2008 marked the beginning of the end of the world's love affair with financialization.

Financialization was one of three megatrends that swept the world in the last thirty years – the others being free markets and globalization. Read more

The Lehman Crisis and the Unfinished Business of Financial Reform

With the collapse of Lehman Brothers in September 2008, a crisis in part driven by derivatives on subprime mortgages, a seemingly obscure sector of the financial market help fuel the worst economic crisis since the Great Depression. Read more