The most frightening thing about the lack of agreement on what happened last time is that the next crisis could hit before long, writes Prospect Editor Tom Clark in the foreword to our August issueby / July 20, 2017 / Leave a comment
Published in August 2017 issue of Prospect Magazine
Not everything that has happened in these last 10 years can be traced back to the financial crisis: the iPhone was, after all, launched in 2007. But nearly everything can be. The financial fallout remains palpable. Old ideas about annual pay rises and meaningful interest on savings have vanished, while food banks have become part of society’s furniture.
Just as significant as the economic consequences are, however, the many, more diffuse effects—from a narrowing, nostalgic culture of comfort food and historical fiction, to the wild, wide-open and polarised politics. There is simply no hope of making sense of the way that the world has gone over this decade, without first going back to the tremors first felt on the money markets 10 summers ago. Everyone from George Osborne to Jeremy Corbyn can agree that everything has changed in the long shadow of the crisis, but that is where all agreement ends. For much of the time in much of the world, austerity has been the reigning idea since, but it has always been bitterly divisive. In Britain, after seven long years of retrenchment and often-anaemic growth, it now appears that the approach is being quietly abandoned. There is, however, little serious thinking—still less any consensus—on what comes next.
Perhaps that is not surprising since there are, as Adam Tooze sets out, still major shortcomings in the standard accounts of why the crash happened and how the banking system was pulled back from the brink. Yes, we’ve read accounts of the money men playing pass the parcel-bomb with ingeniously packaged debt, but we’ve still not got our heads around how exactly the crisis went worldwide. The fundamental mismatch, Tooze explains, was that between a borderless modern private banking system and territorial states with local currencies. The decisive sticking plaster was applied by the US Federal Reserve, which clocked how the banks of Europe and much of Asia had become annexes of Wall Street, and realised that to keep the show on the road it had to supply them with all the dollars they needed—the effective, though undiscussed, globalisation of the world monetary system. This fix has worked, up until now, although arguably only by allowing banks to keep on doing what they were doing before the unsustainable ceased to be sustained. And an under-the-radar pact between a global cabal of central bankers is, putting it mildly, hardly a secure basis for prosperity when nationalism is resurgent.
That new nationalism is itself, of course, another product of hard times. When you no longer believe, as New Labour so innocently had it, that “things can only get better,” and when you see the men who did the damage getting away with it, you need somewhere to point the finger: abroad seems an obvious place.
The most frightening thing about the lack of agreement on what happened last time is that the next crisis could hit before long: Helen Thompson can already spot it taking shape on the bond markets. Getting clear on what happened last time is the very least we can all do to prepare for whatever happens next.