10 years on…

  • The ‘mother of all recessions’?

By the end of September 2008, Lehman Brothers had collapsed and the then US President George W Bush was speaking of an “issue in the Wall Street”. A crisis that began with the US leadership limiting it to the stock market, eventually evolved into one that the Europeans started calling an “American problem”.

The decade that has followed since can be broadly categorised into dominos that tumbled one after the other. The economic crisis that originated in the US required the banking sector to be rescued with inflated numbers. Then the crisis penetrated the Eurozone, jarring Greece and Ireland, and impacting Portugal, Italy and even Spain. What followed was austerity, with the dire economic conditions resulting in the rise of xenophobia – as immigrants became the convenient scapegoats – leading to a surge in the far-right’s string of successes that gave the world Brexit and Donald Trump.

The similarities between the rise of neo-fascist movements in the West during this decade and the post-World War 1 Europe are evident. Therefore, one couldn’t have handpicked an academic better place to chronicle the global economic crash and delineate its political offshoots than Adam Tooze, who specialises in the fiscal developments of the post-World War era and most notably Nazi Germany.

Tooze’s Crashed: How a Decade of Financial Crisis Changed the World released in August this year links the events of 2008 to those that preceded it for years, decades and centuries, and brings contexts to what has transpired in the decade since.

Tooze argues that the reaction to the fiscal crisis exhibited by many states was necessary to salvage the situation but maintains that the ramifications didn’t quite weigh in heavy enough on the banking sector, despite its role in mustering the meltdown to begin with. Crashed also argues that the European Union didn’t handle the crisis prudently and the so called smaller states had to bear the brunt of the laxity of the so called bigger states. The book calls out the austerity measures as a blunder and links those with the rise in populism.

The more money was artificially pumped, the more it cracked the fiscal superstructures, the more it weighed in on the pockets of the voters, and the more they chased politico-economic mirages

Of course, none of these arguments is joltingly unique and they’ve all been peddled one place or the other in accordance with the timeline. But no other book has so thoroughly linked the economic and political offshoots of the financial crisis with one another, while at the same time comprehensively analysed the economics behind the plunge, and covering it all in a book that can be described as the definitive work on the subject.

But while Tooze provides accessibly empiricism to the economic crisis, he also addresses many misconceptions. For instance, the much condemned austerity measures were actually the brainchild of social democrats.

‘Having witnessed the workings of the ECB and the G20 up close, [Jorg Asmussen, former member of the executive board of the European Central Bank] commented on the cruel dilemma he faced: “Either you do what is right for Europe and they crucify you in Germany or you are the hero of the FAZ [the conservative Frankfurter Allgemeine Zeitung newspaper] and you ruin Europe.’

Brexit is clearly outlined as a corollary of botched up economic policies across the continent, which resulted in a rise of EU workers in Britain.

‘For the Bank of England to be activating swap lines and lurching into another round of QE was to signal a crisis, of which the most die-hard Brexiteers denied the reality. In their view, far from calming the markets, the Bank of England’s overreaction was feeding uncertainty, inducing the panic that Remain had predicted but which had failed to arrive.’

But what makes Crashed especially comprehensive is the fact that it doesn’t just focus on the developments in the West, despite the primarily fallouts being felt – and narrated as such – in Europe and the US. The book also talks about Beijing’s economic manoeuvres and Russian adventures in Crimea to underline how despite the domestic political forces desiring an unpacking of globalisation the world remains more connected than ever, especially when it comes to financial collapses.

Considering Tooze’s own work, especially The Wages of Destruction and The Deluge, and indeed the very evident parallels, the juxtaposition between this decade and the interwar period a century ago was inevitable. And as the book does so in precisely the thoroughness that goes with the author’s billing, it extricates the most obvious – and indeed the most ominous – parallel between the two crises: dearth of leadership.

Clueless bankers at the helm of the banking industry triggering the financial collapse, and observing economists throwing outdated solutions to the problem they lacked complete understanding for, paved the way for populist politicians to exploit the vacuum to propose outlandishly simplistic – and dangerously inaccurate – solutions.

The more money was artificially pumped, the more it cracked the fiscal superstructures, the more it weighed in on the pockets of the voters, and the more they chased politico-economic mirages.

‘It was not the misery of youth unemployment in Spain and Greece that made the eurozone crisis into an object of global concern. The world would wake up late to what would be dubbed the “populist danger.” In 2011 it was the prospect of European banking crisis that seized the attention of policy makers around the world.’

Crashed examines the financial crisis and the struggle to curtail it through the transatlantic dollar-based financial system, the Eurozone and the post-Soviet Eastern Europe. And it narrates how these struggles influenced political developments in these three zones culminating in the politico-economic fragility across the globe in the year 2018 – 10 years on.