Examining the Crisis Five Years On

Five years on, many advanced economies still in distress

Emerging market, low-income economies were hurt less, recovered sooner

Financial sector regulation still incomplete

Millions of people—especially youth—are out of work in parts of the world, imposing huge social strains on their countries.

The June 2012 issue of F&D examines—from various angles—the causes of the crisis and what lies beyond.

Until households, financial institutions fix their balance sheets, advanced economies are at risk of only halting recoveries (cover art: Seemeen Hashem/F&D)

The magazine, published in six languages, looks at the steps being taken to fix the regulatory system and the impact on the innocent bystanders—the emerging markets and low-income countries that weathered the global recession relatively well but are now vulnerable to further shocks. Until households and financial institutions fix their balance sheets, advanced economies are at risk of only halting recoveries.

Mortgage crisis triggers financial tsunami

It all began in the United States with dodgy mortgage-backed securities. From the first stirrings in mid-2007, it took a year for the global financial crisis to come to a head and for policymakers to realize what a disaster they might be facing. When investment bank Lehman Brothers went bankrupt on September 15, 2008, a financial tsunami hit. The global economy is still recovering from its repercussions.

The causes of the Great Recession were myriad. They included inadequate financial regulation and balance sheets in disarray as financial institutions, households, and governments accumulated too much debt. Most of these excesses were confined to advanced economies.

Only creative and massive policy interventions, especially in the United States, prevented a complete global financial meltdown. Now, with the United States on the mend, the sovereign debt crisis in Europe continues to sap confidence and a new slowdown—or worse—looms.

The Great Depression of the 1930s was worsened by widespread protectionism, as countries sought to shield domestic markets from imports but only succeeded in making things worse for all. At the start of the current crisis, the Group of 20 advanced and emerging market economies warned of such dangers and much overt protectionism was averted. But more subtle protectionism reared up in 2009 when global trade collapsed, subsided in 2010 with a start to recovery, and now appears to be picking up again.

Emerging...