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Friday 20.04.2018 | Name days: Mirta, Ziedīte

Economist: people have learned little from the Lehman Brothers collapse

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This week marks seven years since the collapse of Lehman Brothers investment bank in USA. According to Saxo Bank Chief Economist Steen Jakobsen, problems caused by this collapse have not yet been resolved. Excessive debt and insignificant investments in human resources are matters that should be addressed, believes the expert.

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe collapse of Lehman Brothers paved way to reduce over-saturation of the market, resolve the surface structure matter and concentrate on productivity. Unfortunately, it became a catalyst for policy-makers to delay actions, buying more time and making it look like they are searching for worthwhile solutions, said the economist. According to him, decision-makers responded to the lack of growth and sentiment with higher expenses, and then forced central banks to print money – a lot of money – once all the money ran out. This did not serve as change for the established global economic order. It was merely continuation of what was started earlier. Politicians ignored the need for reforms, responsibility and investments in human resources and productivity.

This year’s report by McKinsey 7 Co states the size of the global debt since the collapse of Lehman Brothers. The global debt has grown by UDS 57 trillion, which accounts for 17% of the global GDP. ‘Instead of recovering from the crisis we have ended up as hostages with our excessive debts. It seems that global economy is now stuck in a state of constant stagnation. It is important to keep in mind that the seven years since the fall of Lehman Brothers have been fat years for investors and policy-makers. People responsible for decision-making processes maintain the illusion that there will be positive changes in the next six months. In reality, however, there are no reforms or growth – only a desperate need for a new beginning, said the expert.

He believes «this shows we have learned nothing from history. Productivity has been replaced with debt and banks are now under stricter regulations and with unprecedented free funds from central banks. Banks, politicians and central banks have formed a triumvirate in which every institution relies on the other in order to maintain power. None dares to face reality and stop the spinning carousel.»

Jakobsen says Lehman Brothers could have become a turning point for paradigm change. Instead leaders only bought time – something that should not have been bought. Instead, it should have been effectively used. This time was wasted in the last seven years: the economy and society have been tossed in a ditch. Elections across Europe have demonstrated that social structures are at risk, and the lack of jobs, innovations and economic growth is the result of this economic experiment.

«The next seven years will be modest, but with positive trends. Capital expenses will rise, liquidating non-productive investments and possibly impacting stock markets, which served as safe haven for fat years. Reforms should be applied in order to recover productivity. It is also vital to accept that mistakes of the past are part of future success. The collapse of Lehman Brothers and the seven years after that will hopefully be remembered by history as examples of how not to do things,» – added the expert.

«Rise in market fluctuations means this system’s time is coming to an end. As a comparison – what we’re seeing now is a music chair game with high stakes. Once the music ends four or five chairs will disappear instead of one. A lot of time will pass before major problems can be addressed properly: excessive debt and insufficient investments in human resources,» – said Jakobsen.

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