BANKING CRISIS: BEYOND THE THIRD WAVE

The current problems of the Eurozone have been described as "the third wave" of the banking crisis which began in the United States when the scale of the sub-prime lending fiasco became apparent in 2007, and the British bank Northern Rock was implicated in this. With the demise of the US bank Lehman Brothers the following year, a "second wave" of the crisis erupted. This period co-incided with the use of dubious interest management methods by Barclays bank, currently headlined in the London Interbank Offer Rates (LIBOR) scandal. It is useful to remind ourselves that the US authorities regarded the unsupportive position of the UK Government on a potential rescue of Lehman Brothers in 2008 as an important contributory factor in that bank's liquidation, and, as a consequence, in the escalation of the international banking crisis. The British narrative, of course, is rather different, as we were reminded when the deputy governor of the Bank of England informed us recently that it was intervention by the Brown government in the global credit crunch which "saved the world" (his words) in 2008. These comments were made against the backdrop of the Barclays LIBOR scandal. With regard to this present matter, it is perhaps hardly surprising that a different narrative is starting to emerge in the US, to the effect that the US authorities had drawn the attention of the Bank of England to likely irregularities associated with LIBOR in 2008. The real truth of the story may, or may not, unfold in future weeks as British players jostle for the position of new Governor of the Bank of England, and those in the US seek to set the record straight.

In this context, the recent international - ie Anglo-American - media focus on the problems of the Eurozone, and in particular of Spain and Greece, has subsided somewhat: something for which European politicians and those who support the Eurozone are no doubt grateful. Instead, we are reminded that the situation in many US states continues to be analogous to that of some Eurozone countries, with a number of cities recently filing for bankruptcy, including Stockton and San Bernardino in California, itself one of the world's largest economies. So "the third wave" of the banking crisis is by no means confined to the Eurozone, and is proving just as difficult for sunny west coast California to surf as sunny southern Europe. However, it may be "the fourth wave" of this crisis of capitalism, a term deployed by the Financial Times in 2008, which ultimately proves most difficult for the world to ride out. I refer, of course, to the present economic and political difficulties of China, the elephant in the room with the potential ability to demolish the global banking system's house of cards like a tsunami. Unsurprisingly, China's problems are once again founded, but not well as it turns out, upon a real estate bubble, which has contributed to the profound socio-economic polarisation of her enormous population. As the country's turbulent history has shown, China's present predicament is by no means auspicious. Meanwhile we all live in interesting times.