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Lehman — why we need a change of mindset

26 0 0
14.09.2018

I remember September 15, 2008, as if it were yesterday. It was a Monday. Over the weekend, then US Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Wall Street leaders had desperately sought a buyer for the Lehman Brothers bank, which was nearing collapse.

Their efforts were in vain and Lehman soon filed for bankruptcy; all that remained were its debts of $600 billion (€514 billion). Some 25,000 Lehman employees lost their jobs and millions of people lost large parts of their assets as stock prices plummeted worldwide.

Read more: Learning from Lehman: Is the next crash coming?

As if a short circuit had caused a total power failure, the global economy dipped into the deepest recession in its post-war history. Worldwide production fell by more than 2 percent and global trade dropped by over 10 percent. Only thanks to the nationalization of banks, the socialization of private losses and central banks' money presses was it possible to prevent a worse situation.

Theory is bunk

That's why September 15, 2008, remains an indelible memory, because it brutally destroyed the economic theories that I had had no doubts about before.

Thomas Straubhaar is a professor at the University of Hamburg and an expert in economics and migration

During my studies at the University of Bern, I had the privilege of being trained by Jürg Niehans, Karl Brunner and Ernst Baltensperger, three of the brightest and best monetary theorists of their time. They convinced me of the principles of monetarism, which state that faster growth in the money supply than in the volume of goods must lead to a corresponding rise in prices because goods become scarcer and thus more expensive.

But although the world's central banks flooded the financial markets with cash there was and still is no inflation, despite this mass of money that has increased in size more than the amount of goods. On the other hand, the prices for assets such as equities and real estate — and thus also rents — are rising, which makes the everyday lives of the less wealthy considerably more expensive.

Read more: The Crash — The........

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