August 9th 2007 was a Thursday. If you had been at work, you might have been thinking that tomorrow heralded the beginning of a fun-filled weekend. Sports, pubs and restaurants beckoned. At the cinema, The Bourne Ultimatum and Rush Hour 3 were packing them in. Rihanna was high in the charts with Umbrella, featuring co artist Jay Z. It seemed that this easy prosperity would last forever. But we could not have been more wrong.
For this was the day that BNP Paribas closed its position on three hedge funds due to their exposure to certain American financial securities. A move that was both brutal and unexpected. As Larry Elliott points out [1] it was “the pebble that marked the coming avalanche ” And what an avalanche! September saw the first panic filled runs on banks. 2008 began with huge falls on global stock markets. That autumn witnessed the folding of ancient institutions such as Lehman Brothers, Freddie Mac and Fannie Mae. By October, the endless wave of selling brought the entire financial system to within a few hours of total collapse.[2]
The world recovered, sort of, on a wave of dubious money which was given the pompously re-assuring name of “quantitative easing.” But the economic and geopolitical consequences are with us yet. The prestige of the United States and its western allies was irretrievably damaged. Their assumed model, based on the superiority of free financial markets, was shown to be fundamentally flawed. Dictators around the world took note; and began to plan the series of actions which led us to where we are today. Asset prices soared, as did the incomes of the rich. Real wages stagnated, and indebtedness became a feature of millions of poor lives. Deep frustration and anger led to such outcomes as Brexit and the election of Donald Trump. And at the end of it? War ,and the certain promise of another depression.
And, as Elliott points out, the fracturing of international cooperation and the deep mutual mistrust between nations will make attempts to patch things over much harder this time round. In 2008 it was British Premier Gordon Brown who did as much as anyone to avert collapse. No UK Prime Minister has that authority now, nor ever will. As Auden said, we are
“Lost in a haunted wood/Children afraid of the night/who have never been happy or good”
August 9th 2007 was the day we entered the dark wood. Can we ever find a way out?
[2] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008
#2007 crash #financial markets #depression USA #Russia #china #brexit #donald trump #gordon brown
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