Bankruptcy, bubbles and bailouts: The inside history of the Treasury since 1976 by Aeron Davis

Author:Aeron Davis
Format: epub

From November 2007 most of my time in the Treasury, until 2009, say two years, was focused on stopping the entire system from collapsing. It was crisis management for about two years. And that obviously involved the banks. But from the end of 2008, 2009 onwards, when it was obvious that we were heading into the economic abyss, then public spending and the control of it was a concern. But the biggest concern was how did you stop a recession going into a depression.

Consequently, finance ministers and technocrats everywhere were forced to take radical courses of action that they would never previously have admitted were possible. Banks and other institutions had to be bailed out or nationalized. Four large US investment banks (Merrill Lynch, Citigroup, Bear Stearns and Morgan Stanley) each had to borrow $1.5 to $2 trillion to avoid bankruptcy. Governments everywhere introduced ultra-low interest rates and created trillions in quantitative easing. Government debt shot up. US national debt went up 50%. The UK's external debt rose from 22.5 % of GDP in 2007 to 66.5% in 2009. Others, such as Japan, Greece, Italy and Portugal, soared above 100%. In 2008–09 governments together offered a total of $15 trillion in a mix of loans, guarantees and bank bailouts. By 2012 the total cost to the UK alone of such measures had reached £1.2 trillion.¹⁰ Meanwhile individuals and non-financial businesses experienced mounting debts, bankruptcy, job losses and repossessions. Arguably, many parts of the global economy have not recovered since (although certain companies and individuals have thrived).

By almost all accounts, the crash and its magnitude took everyone in authority by surprise. There were a few people who warned of the growing problems and potential for disaster. But those who did, by definition, lacked credibility or were marginalized for speaking out.¹¹ Andy Haldane has held many senior positions in the Bank of England over three decades, including being its chief economist. He was one of the few to ask difficult questions prior to the collapse, but he believes nobody saw the size and scope of what was to come:

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