Five years on, are we finally recovering from Lehmans?

It was a grave mistake not to rescue the investment bank in 2008

Share

It is five years since Lehman Brothers collapsed, and how the world has changed. Then, it was top of the boom. We had just had the glitz of the Beijing Olympics and while it was clear the banking system was under pressure, the authorities had so far managed to hold things together. We had rescued Northern Rock, the Americans Bear Stearns, AIG and so on. Then it all fell apart; Lehmans was allowed to go down, the banking catastrophe occurred and most of the developed world experienced its deepest recession since the Second World War. We live with the consequences: living standards have fallen in most countries and, in some, unemployment has risen to desperate levels.

There are two obvious questions. Could we have done better? And, are we through it now? Some thoughts about each.

It is now pretty widely accepted that it was a grave mistake not to rescue Lehman Brothers, because the result was a complete collapse of confidence in international banking. The costs of propping up the rest of the banking system were then far greater than the cost of propping up Lehmans would have been. But the following spring the G20, formed in 2008 by President Bush, had a meeting in London at which support for the global monetary system was pulled together and the foundations for the slow recovery were laid. Gordon Brown, who chaired that meeting, deserves more credit than he has so far received.

You could certainly say that the actual crisis was not well handled. Monetary, fiscal and regulatory policies in the run-up were also deeply misguided – and the performance of banking leadership was disastrous. But, having got to where they were in spring 2009, the world leaders at that G20 meeting did patch things up well enough.

Through it now? Well, maybe we just about are. You can have a debate about the effectiveness or otherwise of the Coalition’s economic policies and about the solidity or otherwise of the present upswing. But there is some sort of recovery across the developed world, with only those eurozone countries most clobbered by earlier excesses and current debts still failing to take part in it. If the global economic cycle reasserts itself, we should have several more years of decent growth before a slowdown towards the end of the decade.

One narrow measure of success will be when the first chunk of the Government’s shareholding in Lloyds Bank is sold back to the public. This should be very soon. A share price at 78p, a three-year high, is well above the price at which the stock was bought. Though there are arguments for waiting for an even higher value (Morgan Stanley has a target price of 100p), there is political pressure to get things moving. It looks plausible that the taxpayer will end up with a decent profit on Lloyds and may break even on Royal Bank of Scotland.

The broad measure of success, here and elsewhere, will be when the world has a banking system that is secure and can start supporting economic growth. We are still too close to the recession to be able to know why it has taken so long to recover, but part of the answer must be that banks have had to devote resources to repairing their balance sheets, raising more capital, writing off duff loans – and have therefore been unable and unwilling to support growth.

Historically, a recession following a financial crash takes longer to recover from than a recession caused by other factors. But five years is a long time and you can now see signs of a return to normality, even if the new normal is less adventurous than the old. Actually, the way banks are behaving now – more cautious and, let’s hope, more responsible – is more like banking of a past age than that of the noughties. And the obvious early sign that credit is flowing again, here and in the US, is in the recovery of house prices.

Final point: one other sign of a return to normality has been the rose in long-term bond yields. Yesterday, the 10-year gilt yield was back above 3 per cent, double the level of summer last year. The panic that drove cash into supposedly safe-haven gilts is clearly receding.

The British car industry motors ahead

One of the brightest spots of the UK economy over the past year has been the motor trade, with both sales and production countering the Europe-wide downturn. And one of the brightest spots within the motor trade has been Jaguar Land Rover. The news that the company is taking on another 1,700 people is part of a continuing success story, a particularly stunning one considering the troubled history of the two marques. How has the new Indian owner – Tata – succeeded where its predecessors failed?

It may be partly lucky timing; Ford had done a lot of development work that was only just showing up in new products. But it was also good management. Dr Ralf Speth, Jaguar Land Rover’s chief executive was  ex-BMW and he said once that, as a child growing up in Germany, he had admired the technical excellence of Jaguar, winning at le Mans against Mercedes at a time when BMW was on its knees. With Jaguar now tiny compared with its German rivals, he wanted to help bring it back to its former pre-eminence.

Actually, it is the Land Rover brand that has so far been making most of the running, because its market segments are larger. But Jaguar is now broadening its range and you can see the two brands benefiting from this growth phase for the luxury car market – a boom that seems likely to continue a while yet.

React Now

iJobs Job Widget
iJobs General

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

C# Developer (HTML5, JavaScript, ASP.NET, Mathematics, Entity)

£30000 - £45000 per annum + Benefits + Bonus: Harrington Starr: C# Developer (...

C# Integration Developer (.NET, Tibco EMS, SQL 2008/2012, XML)

£60000 - £80000 per annum + Benefits + Bonus: Harrington Starr: C# Integration...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Day In a Page

Read Next
Magaluf remains a popular party destination for British holidaymakers, despite a growing reputation for street violence in recent years.  

What happens in Shagaluf no longer stays there

Ellen E Jones
Simon Laird (left) and Sister Simon Laird, featured in the BBC's The Secret History of Our Streets  

Estates of the nation: Let's hear it for the man in the street

Simmy Richman
Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

Anyone but Argentina – why Brazilians don’t love their neighbours any more

The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

The Open 2014

Time again to ask that major question - can Lee Westwood win at last?