Global finance: at the mercy of a new crisis?

9-10-2020

Global finance: at the mercy of a new crisis?
New York stock market on September 15, 2008. Financial giants’ clay feet emerge: Lehman Brothers declares bankruptcy. After the shock, regulatory legislation for the banking sector was first tightened under Barack Obama before being sharply reduced by Donald Trump. Public debt, private debt, providing money, and the democratic deficit: can the disaster of 2007 be repeated? What power do we have in the face of the next crisis?

The 2008 crisis, with the devastating effects that ensued, did not trigger a fundamental questioning of our economic system, particularly banking.
The main source of US legislation (the Dodd-Frank legislation, which allows, in particular, a framework for speculation on bank funds; an anticipation of the bankruptcy of the latter) has been gradually unraveled by Donald Trump in 2019, who seems to want to return to a deregulated system. In Europe, the Banking Union was finalized in 2013, in response to the financial crisis, and banks can no longer speculate with their own funds, and therefore put themselves in excessive danger. But in general, there is an incentive to resort to credit, which can be dangerous according to economist Jézabel Couppey-Soubeyran.
The Dodd-Frank laws: the explanation of J. Couppey-Soubeyran

At the end of this crisis, «we were led to believe that the interest of the bank was at the same time to defend the general interest, this is completely incompatible» affirms Eric Bocquet, Communist senator from the North. State bailout of banks would not be justified.
A new crisis to fear?
Even as the effects of the 2008 crisis are still being felt in the global economy, new, potentially devastating speculative bubbles tend to emerge, leading Jacques Mistral, director of research at the Brookings Institution in Washington, to argue that the financial crisis is «a subject on which one does not gain experience». There is no in-depth questioning of our economic system, nor even a legislative precautionary system in place.
In the United States first. The national debt reached, in 2019, 22 trillion dollars (19.6 trillion euros), thus exceeding the amount of the annual GDP of the country. This amount covers several speculative bubbles, like so many potential economic time bombs for the country: corporate debt has thus doubled in ten years, when, for their part, students find it difficult to repay their debts.
The weight of student and automobile debt in the United States

In France, the debates focus on the dangerousness of potential threats: private debt or public debt, which will overwhelm the French economy? Indeed, Marc Touati, Founding President of ACDEFI (Aux Orders De l’Economie et de la Finance) says that the main French danger is the «public debt bubble» that we are unable to cover. Jézabel Couppey-Soubeyran, a lecturer at the University of Paris-1-Panthéon-Sorbonne and editorial advisor at CEPII, has a different opinion: «the real problem is private debt», which covers 133% of the GDP against 98 % for the public debt, thereby weighing down the country’s finances and its investment capacity.


Precaution: a tangible and open to criticism principle

A solution seems to be self-imposed: the precautionary principle, that is to say, the advent of the model of good governance. This model is based on the modernity of the state in order to regulate public spending: we must do better with less. But this recommendation especially appeals to liberal economists. For Jézabel Couppey-Soubeyran, it is up to the banks to evolve, she underlines the importance that financial institutions can take an image.