Middle-east Arab News Opinion | Asharq Al-awsat

The Financial Crisis…A Year Later | ASHARQ AL-AWSAT English Archive 2005 -2017
Select Page

Perhaps September 15, 2008, does not represent the real start of the financial crisis that developed into an intense economic recession, as the storm was gaining strength months before that and the markets were in a very tense state. However, nobody would’ve thought that the US government would have left the Lehman Brothers, one of Wall Street’s biggest firms, to fate and let it collapse under the bankruptcy law. This raises questions even today as to whether the decision not to rescue the firm, which spread shockwaves among all global markets, was right or wrong.

A year has passed since the economic crisis or storm [began]. It has become the number one challenge on the international and local political and economic agenda with all its political, social and economic implications. The day the Lehman Brothers firm collapsed was equivalent to an official announcement of the start [of the crisis] after which the world embarked on plans to save and inject the economies with astronomical and unprecedented numbers that exceed the cost of war.

A lot has been said and done about making the most of what has happened, which partly goes back to the practice of speculation, which is dangerous to these financial institutions and is a kind of culture that dominated the financial markets and those who invest in them, underestimating the risks. There is a lot of discussion taking place about containing these risks and reorganizing the markets and putting constraints in place so that this does not happen again.

But there is another political side that requires the repercussions of the crisis on the level of international relations and balances of power to be monitored and observed, especially with the emergence of China – that took place quicker than expected – as a political and economic player with great strength, and with the tug of war between states with overlapping interests and conflicts over these interests at the same time.

There is a negative side to the crisis with regards to international relations; most prominently the decline of world trade by as much as 10 percent, the increase in states taking protective measures as we are now seeing the United States and China imposing custom tariffs on each others’ products, social effects of the economic downturn, people losing their jobs and the failure to create new jobs, causing political challenges and tensions for governments, especially in developing, poor countries that find themselves suddenly facing a shortage in funding and investment for reasons that have nothing to do with them.

But there are also some positive factors; a stronger belief in interdependence in the world, as rescue plans and plans to stimulate economies were discussed and implemented as part of a framework and with international coordination led by the G20. This launched further debate on reforming international financial institutions to give a stronger voice to new players in contrast to traditional players. It was also apparent that powers and states that consider each other competition found that sometimes it is in their own interest to help their competition so as not to take everybody down. For example with regards to the United States and China, the latter has the most liquidity in the world now and is the biggest lender to the US economy through its applications, especially regarding US treasury bonds.

If this international cooperation through coordinated collective plans helped avoid falling into a recession worse than the [Great Depression of the] thirties – with signs and figures that indicate that development has returned to some industrial countries – then this coordination will be most important when the recovery begins because the trillions spent by governments will need to be paid for in order to avoid a more severe crisis.