The financial crisis of 2007-2008, also known as the “Global Financial Crisis” and “2008 Financial Crisis,” was considered the worst financial crisis since the Great Depression of the 1930s by many economists. While stock markets dropped worldwide, it threatened the collapse of a number of large financial institutions. In addition to the suffering housing market (which resulted in foreclosures, evictions, and persistent unemployment), the crisis played a major role in the failure of key businesses and drops in consumer wealth estimated in trillions of U.S. dollars.
The world hasn’t fully recovered from the lingering problems of 2008. Could there another similar situation in the foreseeable future?
Chris Flowers, US private equity investor specializing in financial services, warned the public about a banking crisis last year. He believes that lenders will have a hard time attracting necessary investors to survive the next financial crisis:
“All the stuff that has happened and all the rules we’ve introduced have depressed profitability, and that is a real vulnerability. Nobody is going to invest in an industry with returns of 5 per cent,” he told the Financial Times in an interview.
It’s rare for economists, especially those involved at an investment bank, to predict a recession. It’s hard to get it right because recessions refer to a change in trend and economists commonly generalize from past ones.
According to Min Liao, Director-General of the China Banking Regulatory Commission, the world will definitely face another global financial crisis within the next five years.
Liao was interviewed for the Summit on the Global on the Agenda of the World Economic Forum and believes that the global economy will be unable to recover to pre-crisis levels in the future:
“The reason lies in the fact that many of the problems behind the 2008 crisis remain unsolved. The fragility is still there, for instance in shadowing banking, high indebtedness, a lack of structural reform, the sustainability of emerging markets, and high leverage.”
Liao also believes that the next crisis will undoubtedly catch us unprepared once more. He mentioned that the tightening of international regulatory norms for financial institutions (like shadow banking) could be a big threat to the global economy.
“China’s recent stock market turmoil testified to the risk-amplifying effect of shadow banking, which is armed with new technologies. The concern is the same in the US and Europe,” Liao explained.
Do you believe that there will be a global financial crisis within the next 5 years?