THE BLOG

Amnesia and the Financial Crisis

13/09/2013 15:07 BST | Updated 13/11/2013 10:12 GMT

One of the most dangerous side-effects of the Great Recession is amnesia. Our memories have already been eroded by a combination of Twitter and 24-hour rolling news. Add to that the jarring trauma of 2008's existential challenge to capitalism and Voila! The essential details of recent economic history are erased.

This amnesia is on full display at the five year anniversary of the collapse of Lehman Brothers. This event has come to be understood, by commentators on all sides of the debate, as the event that triggered the crisis. But this is to rewrite history. The bank collapsed once the crisis was already underway. To claim that it kicked the whole thing off is to buy into the 'too big to fail' propaganda; the myth that to let a bank go to the wall is catastrophic. If more banks had been allowed to fail the real catastrophe of savage budget cuts, a decade of economic stagnation and an endless squeeze on living standards would have been averted.

The footage of well-dressed staff carrying their boxes out the door was capitalism's horror movie, the stuff of nightmares. What happened to Lehman Brothers sent shivers down Alistair Darling's spine. The world's banking system was 'within hours' of collapse. We were on the brink of financial meltdown, of Armageddon. We were staring into the abyss. The reason for the consensus amongst both Right and Left about the key role that Lehman's collapse played is that both sides are invested in playing up the threat of economic apocalypse, although for different reasons. The Left rejoices in the revelation of capitalism's inherent vulnerability. The Right wanted the state over a barrel.

The second sign of amnesia is that the conditions that produced our economic predicament are being recreated by the coalition government with such breathtaking precision that it's remarkable the entire country does not collapse in a fit of exasperated irony.

Let us recap, if we must. The recession was caused by the state bailing out banks exposed to mortgages rendered untenable due to a combination of a burst housing bubble and loan-to-value ratios that are too high. Five years later, the government introduces the Help to Buy scheme, whereby the state underwrites high loan-to-value mortgages producing a new housing bubble. This is beyond not learning lessons. Almost the only way of understanding it is to conclude that memories have been wiped monstrously clean.

The third sign is more familiar and - a sign of hope here - scarcely needs rehearsing. Namely, that the financial crash was caused by the banks, not by the profligate state. If the present government succeeds in persuading the 2015 electorate that spending cuts were indeed the consequence of inheriting 'labour's mess', we'll know that the amnesia is afflicting not only our leaders, but the population at large.