How quickly a year passes by!

15th September, 2009

A year has now passed since the collapse of Lehman Brothers. This prompted financial chaos that nearly brought down the world economy. Two very different perspectives exist on this event in some papers published today. The Lex column in the Financial Times warns politicians from meddling in the world economy, available here. The Guardian (no surprise) advocates a very different stance available here.


These articles taken together offer a wonderful overview of the different paths open to policy makers looking to lead their countries to safety. What does it all mean for Ireland?


Firstly, the problem of moral hazard looms larger than ever. We have demonstrated to our banks that we will bail them out because they are too big to fail. Everyone says this will never happen again. But this is what is said at the end of every economic bubble! Alastair Darling today champions the idea of a ‘Living Will’ today for such massive banks. Seems like a sound solution to this problem.


Secondly, the cost of this bailing out could be massive for the tax payer. I said ‘could’ with care. Things could unfold that reduce the loss. However this is very unlikely. So, we must make sure that regulation is in place to ensure this never happens again. An obvious point, again. However it’s still a fact that the EU has not yet produced an agreed policy to tackle the source of financial instability in the banking sector.


All so obvious. But it’s the obvious things we always seem to miss.