One year on since Lehman Brothers went belly up

The media kept reminding in the last few days that it has been a year since the investment bank Lehman Brothers went belly up and that seemed to have signalled the start of meltdown in the financial markets to be followed by an economic recession, which everyone agrees is unprecedented in its nature.

In truth the symptoms that were pointing to both the meltdown in the financial markets and the economic recession were there to be seen, but were ignored, in particular by the regulators.

Be that as it may, one year on, after millions of jobs lost around the world, after billions of euros, dollars and sterling pumped into bail outs, and after a number (as yet not totally quantified) of financial institutions have gone bankrupt, we are starting to see the light at the end of the tunnel.

It is still uncertain as to whether there will be economic growth in the last quarter of this year and as to how significant economic growth shall be in 2010. There appears to be agreement that the recovery will be a slow one and there is also agreement as to the nature of that recovery.

This latter point needs to be kept in mind as one should not just focus on the top line gross domestic product figures of the world's leading economies, but also on developments in the emerging economies as well as the less developed economies and the very poor economies.

We cannot be happy with the fact GDP may be increasing in the US or in the EU, while countries such as India or Brazil are still languishing in the recessions or while the African countries have become even poorer than they were before the onset of the recession. If we wish to speak about the global economy than our discussion has to be indeed global in perspective, and cannot exclude those countries have no say at all because they are poor countries.

After the meltdown of the financial markets, there was a big outcry about the need for new rules as to how the global economy should be governed. For a while that outcry had died down and it seemed these supposed new rules had fallen prey either to the bureaucrats or to the very strong lobby of financial institutions (in other words the people that have caused this mess in the first place).

Fortunately this was not to be as only this week President Obama reiterated his view that there needs to be a strong reform of the world financial markets.

Mr Obama claimed that the economic situation is stabilising itself and there is a slow return to normality. However, the key point he made when speaking in the anniversary of the demise of Lehman Brothers, was that there can no longer be the excesses that we have had in the last years, with easy lending, high risk investment instruments, and exorbitant executive bonuses, while consumer protection was brought down to a minimum and with taxpayers having to pay for the errors of others.

I believe that Mr Obama's remarks captured the sentiment that is prevalent worldwide. This is why recovery will be slow. Admittedly the stock markets around the world are in the main reporting positive results, but I would not expect consumers and investors to have a short memory. Current investor and consumer sentiment is still not positive and the situation is likely to remain this way until these new rules for the regulation of financial markets are implemented.

The fear of unemployment, or a drop in income, or of a reduction in one's wealth, is still there and will stay there, if there persists the fear that it is business as usual. This will reconfirm the view that the nature of the economic recovery is still unknown.

Are there any lessons to be learnt by Malta in all this? I believe that during this last year, we should have been thankful that by and large the regulatory framework of our economy has withstood the test, unlike other economies. In terms of employment, we are certainly seeing less jobs being created, even though the impact of the international recession has not been as severe as that of other countries.

We shall soon have our Budget, a time during which the economic debate becomes more intense. I am hoping that one year on we have also learnt our lesson and that expectations regarding the budget are dampened to reflect the current international scenario.