IMF Director: Peoples paid the costs of the global financial crisis

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IMF Director: Peoples paid the costs of the global financial crisis

 

Spread Wednesday , 05 September 2018

 

The global financial crisis is still a milestone in our contemporary history and will remain a milestone for the generation it has taken, said Christine Lagarde, Director General of the International Monetary Fund (IMF).

 

This came in an article written by Lagarde on the IMF blog on Wednesday, in which she recounted the repercussions and lessons learned from the global financial crisis on the tenth anniversary of the announcement of the fourth largest US bank, Lehman Brothers, then bankrupt after the loss in the mortgage market, That the market share of high-risk mortgages in the United States accounted for 40% of the total mortgage-backed securities by 2006, after the type of loans were virtually non-existent in the early nineties of the last century.

Lagarde said the heavy economic costs incurred by private individuals who felt anger at the rescue of banks and their impunity had been instrumental factors in the emergence of anti-globalization reaction, especially in advanced economies, and the erosion of confidence in governments and institutions.

 

Lagarde added that the shadow of the crisis does not seem to leave us soon, but a decade after the collapse of Lehman Brothers gives us an opportunity to assess the actions taken to address the crisis over the past decade.

The collapse of Lehman Brothers widened to create a collective approach to withdrawing deposits from the financial system, causing a systemic crisis. Twenty-four countries were victims of banking crises, and economic activity was largely out of date.

 Governments are not immune to fiscal impact. Public debt in developed economies has risen by more than 30 percent of GDP, partly due to economic weakness, partly to economic revitalization, and a third to bailout failed banks .

Looking back today, the pressure points will look obvious, but they were less clear then. Most economists have failed to predict the future, a harsh lesson in the gravity of the drift of collective thought.

Lagarde explained that the weaknesses that led to the crisis were at the forefront of the pace of financial innovation exceeded the pace of regulation and control, and then entered the financial institutions, especially in the United States and Europe, in a bout of risky risk.

Globalization accelerated economic contagion. European banks were the largest buyers of US mortgage-backed securities. At the same time, the introduction of the euro has led to large capital flows to the periphery of the region driven by lower borrowing costs. Banks in the major euro zone countries have financed these flows, another channel of financial infection, according to Lagarde.

Christine Lagarde was impressed by the actions taken immediately after the crisis, despite the misguided policies before it happened. She said that the IMF played an important role, urging member countries to significantly increase their financial resources, enabling them to lend to countries affected by the crisis 500 billion dollars.