September blues

September blues

9/11 and financial crisis unleashed popular anger, but if we lose perspective things will worsen
On 15 September 2008, Lehman Brothers Holdings filed for bankruptcy protection in US, a watershed moment in a global financial crisis whose impact spilled over into politics and changed the world. A decade later we live in a world less optimistic, more uncertain and characterised by popular anger exploited by demagogues. September seems jinxed. In 2001, the terror attacks on New York’s World Trade Center triggered wars without end and unleashed atavistic forces. These two independent events gave rise to similar emotions and their consequences are with us to this day. Recognising that and putting things in perspective are needed to avoid reruns.

The run-up to the financial denouement in 2008 had characteristics similar to every bubble. Common sense was abandoned and irrational home loans, subprime lending, surged. One kind of loan captured the essence of the era, Ninja loan (no income, no job, no asset). On this shaky foundation, financial intermediaries and banks built complicated instruments that concealed rather than hedged risks. Central bankers were not unaware of the problem – RBI was prepared for a crisis from January 2008. When this house of cards collapsed tax money was used to bail out financial intermediaries, while ordinary people lost jobs, homes, savings.

Popular fury emanating from that phase has found a target in everything from immigration to trade. Politicians with snake oil solutions have found takers. That’s not the only problem. The antidote to 2008 was loose monetary and fiscal policies. A decade on, uncertainty and friction abound. In a similar vein, the terror attack of 2001had a domino effect. West Asia has seen almost two decades of war. Refugees from that war ignited anti-immigrant sentiment. The result is the slow unravelling of the European project which was born of a desire to avoid another catastrophic war.

While there is justification for popular anger everywhere, including in India, the world is still groping for solutions. Economic populism and curtailment of civil liberties have neither made people better off nor safer. The only solution is to learn from the mistakes of the last two decades and improve on what was painstakingly created, not jettison it altogether. Multilateral institutions and trade have lifted millions out of poverty; civil liberties have made the world a safer and better place. We need to keep that in mind when demagogues appeal to primal fear.