Editorial | Recalling the global financial crisis

September 2018 marked the 10th anniversary of the collapse of the investment bank, Lehman Brothers, which is seen as the start of the Great Recession. Apart from the huge loss of wealth, jobs and housing by ordinary people in many developed economies, the recession had a truly profound global impact on the practice of business and government. Developing countries like Jamaica that are part of the global trading and financial system are still adjusting to the fallout from the crisis.

Over the last month and a half, there have been several analyses and reflections abroad on the lessons learnt from the crisis and how it was managed. There was not much by way of local discussion. This is regrettable. It would have been useful to hear the recollections of the policymakers at the time - Bank of Jamaica, Ministry of Finance, ministers, bankers, economists and other market players - about what conditions were like then.

There was a conclusion drawn at the time that Jamaica, having had to deal with its own financial meltdown of the 1990s and the subsequent rescue by FINSAC, did reasonably well in weathering the 2008 global crisis. There is little doubt that policymakers at the time were severely tested and it would be good to understand the decision-making processes.

We believe there are four important lessons from the 2008 global crisis. First, the collapse was not an accident that could not have been foreseen. Data and isolated events were clearly pointing to the emerging crisis. Indeed, many looking back have concluded that sheer greed prevented people from shouting sooner about the excesses of key market players.

Almost every element of the system for checks and balance was found wanting - regulators, legislators, boards of major corporations, international financial institutions, rating agencies, audit and accounting firms, the financial press. It was truly a systemic failure on a global scale.

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The cheap credit that flowed from the rather loose monetary policy of the Fed during the decade leading up to the crisis created both housing and stock market bubbles. This was an important policy failure. Further, the financial system prior to 2008 outgrew the regulatory systems in most of the developed economies.

The second lesson is the conclusion that most policymakers, both monetary and fiscal, acted too slowly in fully understanding the depth of the crisis and deciding what to do. There was a bitter debate about whether to bail out the banks, seen as the root cause of the problem. In the end, there was not much choice. Failure to save the banks and the large players in the financial system could have led to the crisis engulfing the real sectors, leading to a depression. This was a harsh reality that the Jamaican authorities faced in the 1990s.

The third takeaway is that despite all the missteps, backlash and poor communication at the time, the right decisions were taken eventually by the critical institutions. The financial system was largely preserved, and a depression avoided. Few countries punished the bad actors; some were even handsomely rewarded with golden parachutes, fuelling resentment, particularly among those who lost their homes to foreclosures.

The fourth lesson is about the seriousness the academics and policymakers put into studying the causes of the crisis, the cost, the distributional effects, and what needed to be done. The conclusions were used to build up the resilience of the financial system and to reduce the risks of a similar crisis emerging. Broadly, what was called for was stronger regulations and tighter enforcement, along with better capitalisation of banks.

As the memory of the crisis fades, there is a great push for the removal or easing of the enhanced controls and regulations. This is likely to happen eventually, just like the inevitable arrival of another crisis in the future. Regulators, including those in Jamaica, should remain wary.

In the case of Jamaica, we still await the arrival of the much-heralded FINSAC enquiry report which we hope will shed light on the lessons to be drawn from our financial crisis of the 1990s. Much time has passed, millions of dollars spent, yet still we wait. Perhaps Minister of Finance Dr Nigel Clarke could provide an update.