The world has not learned the lessons of the financial crisis

Date: 06-09-2018
Source: The Economist

Banks are safer, but too much of what has gone wrong since 2008 could happen again

WHEN historians gaze back at the early 21st century, they will identify two seismic shocks. The first was the terrorist attacks of September 11th 2001, the second the global financial crisis, which boiled over ten years ago this month with the collapse of Lehman Brothers. September 11th led to wars, Lehman’s bankruptcy to an economic and political reckoning. Just as the fighting continues, so the reckoning is far from over.

Lehman failed after losing money on toxic loans and securities linked to America’s property market. Its bankruptcy unleashed chaos. Trade fell in every country on which the World Trade Organisation reports. Credit supplied to the real economy fell, by perhaps $2trn in America alone. To limit their indebtedness, governments resorted to austerity. Having exhausted the scope to cut interest rates, central bankers turned to quantitative easing (creating money to buy bonds).

Just as the causes of the financial crisis were many and varied, so were its consequences. It turbocharged today’s populist surge, raising questions about income inequality, job insecurity and globalisation. But it also changed the financial system. The question is: did it change it enough?

Lehman ten years on: more has changed than meets the eye

Date: 06-09-2018
Source: The Economist

But is the restructured financial sector safe

MASOOD, who uses no other name, is the proprietor of the Express Café coffee cart that sits outside 745 Seventh Avenue in midtown Manhattan. He thus had a front-row seat for the global financial crisis. In 1998 he was selling his wares to the workers at the building site where a new 32-floor building for Morgan Stanley was going up. In 2001 he greeted the employees of Lehman Brothers, whose downtown headquarters had been damaged and polluted by the attacks of September 11th; having been working shifts in a nearby hotel, they were delighted to move into the building Morgan Stanley had ceded to them. He was there on September 15th 2008 when Lehman’s employees filed out with soon-to-be-iconic cardboard boxes. And he was there in the days that followed, when many of them came back, some with the same boxes, to work on cleaning up the mess under the auspices of Barclays.

The fall of Lehman was not the beginning of the global financial crisis, nor the moment when risks were highest: that came in the days and weeks that followed, as more and more institutions started to teeter. But it was the point at which the previously unthinkable became real. A big bank with a portfolio of dodgy securities that dwarfed its capital could no longer fund itself—and it was allowed to fail. The world’s credit markets froze with fear. A complete collapse of the financial system seemed plausible, and with it a global depression much deeper than the parlous recession which actually followed.

For safety’s sake, we must slow innovation in internet-connected things

Date: 07-09-2018
Source: Technology Review by Martin Giles

That’s the view of security expert Bruce Schneier, who fears lives will be lost in a cyber disaster unless governments act swiftly.

Smart gadgets are everywhere. The chances are you have them in your workplace, in your home, and perhaps on your wrist. According to an estimate from research firm Gartner, there will be over 11 billion internet-connected devices (excluding smartphones and computers) in circulation worldwide this year, almost double the number just a couple of years ago.

Many billions more will come online soon. Their connectivity is what makes them so useful, but it’s also a cybersecurity nightmare. Hackers have already shown they can compromise everything from connected cars to medical devices, and warnings are getting louder that security is being shortchanged in the stampede to bring products to market.