Anton Brender and Florence Pisani, both economists teaching at Paris-Dauphine University, argue in the interview below that the main problems were deeply rooted and are to be found in two tightly linked developments that for many years were left largely uncontrolled: the increase in the intensity of international transfers of savings – the so-called ‘global imbalances’ – and a wave of innovations – globalised finance – that have changed the way savings and the risks associated with their investment can be transferred.
According to Pisani and Brender, globalised finance allowed continuously increasing amounts of emerging countries’ savings, invested in ‘risk-free’ assets, to finance loans that were far from being risk-free. The risks attendant on those loans did not vanish of course: they were carried by the risk-takers of the globalised financial system. Hedge-funds, investment banks, off-balance-sheet vehicles, etc. functioned here as parts of a genuine alternative banking system, taking on the bulk of the liquidity, interest-rate and credit risks generated by the mismatch between the assets that emerging regions’ savers were ready to – or could – invest in and the liabilities developed countries’ borrowers issued. Unfortunately, no one was in charge of keeping in check either the quantity of risk being accumulated in this way or the quality of the loans generating those risks. The consequence was terrible: the only force that could finally rein in the continuous deepening of the global imbalances was the collapse of globalised finance.
The global financial crisis led to widespread dislocation. Understanding the forces that led to such a crisis is no easy matter and Pisani and Brender offer a thorough and cogent explanation.