FINANCIAL CRISIS II

A string of recent snippets of bad economic news (debt downgrades, falling share prices, budget cuts, low growth) are leading a number of commentators to suggest that we are about to enter a repeat of the financial crisis of 2008.

I disagree with this view. For the simple reason that I don't think the earlier crisis has ever stopped. That crisis was caused by a lot of private banks making a lot of very, very silly decisions. Such as selling mortgages to people with no income. After Lehmann Brothers went bust, Governments were forced to step in and rescue financial institutions deemed too big to fail.

But that did not "solve" the problem, it merely transfered it from the private to the public sector. For at the heart of the current worries is the one that these Governments can't now service the debts they have taken on. Greece certainly, Portugal and Ireland almost certainly, Spain, Italy, even the U.S. possibly.

This is not Financial Crisis II, but the final reel of Financial Crisis I.

Walter Blotscher