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Business as usual

September 14, 2009

Banks are raking in profits again, thanks partly to state bailouts, but remain hesitant about extending credit. Now governments have prominent roles in the financial sector and are under pressure to change the rules.

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bankers behind Lehman logo
Lehman is gone but bankers are back in businessImage: AP

The casino is back in business, trading and speculating on the financial markets are on their way to reach pre-crisis levels. Banks are again posting profits and managers are again looking forward to big bonuses. A year after US investment bank Lehman Brothers filed for bankruptcy, not much has changed - at least not in the sector that triggered the global financial crisis.

New data suggest that after passing the crisis on to the economy beyond the walls of Wall Street, the financial markets have yet again managed to close the shutters to the real world.

The Bank for International Settlements, the world's biggest central bank body, reported Sunday that interbank money markets are recovering to levels not seen since early 2008. The bank said that shows financial institutions are once again dealing with one another, but that they also remain hesitant to extend credit to businesses.

Reduced risk

Germany's central bank chief Axel Weber
Germany's central bank chief Axel Weber says: "Growth not sustainable yet."Image: AP

Germany's federal bank chief Axel Weber, however, said the somewhat brighter general economic outlook is in part due to the government bailout of financial markets, which has contributed to "systemic risk reduction."

"Aggressive monetary policy and huge economic stimulus packages" have also helped improve prospects, he said, but added that such measures make it hard to know if growth will be self-sustainable.

But while bankers are benefiting from rebounding markets for the moment, the impact of the crisis on global economies and political decisions means that even they will face new realities in the long run. To prevent markets - and ultimately their economies - from collapsing, national governments have financially propped up or de facto nationalized major banks.

Leaders of the G-20 group of major nations pledged in April to strengthen financial supervision and establish stricter rules on bonus payments. When they meet again this month in the United States they are expected to reinforce those measures.

Economic crisis not over yet

Politicians have ample reason to remain anxious. Germany is bracing for a new wave of bankruptcies this fall and unemployment figures are also set to rise, just statistics have shown that more businesses and individuals are expected to default on credit payments.

Experts estimate that German lenders alone could face losing 120 billion euros ($176 billion) by 2011 as a result. The situation across the European Union does not look much different, even though the European Commission on Monday announced that the euro zone is emerging from recession.

"The EU economy appears to be at a turning point," an interim forecast said, but it confirmed that the economy of the 16 countries using the euro would contract by 4 percent this year.

Disaster lurking in balance sheets

IMF logo on glass door
The IMF warns the crisis is not overImage: picture-alliance/dpa

Despite positive signals from Europe's biggest economies, the head of the International Monetary Fund has warned that the global economic crisis is not over yet.

"In the minds of too many - not only regular people but also top politicians - the financial crisis is already behind us," Dominique Strauss-Kahn told German news weekly Der Spiegel, adding that more work on financial sector regulation was needed.

Despite posting massive profits, the economic underpinnings of financial businesses themselves remain fragile a year after the Lehman collapse.

Hypo Real Estate, nationalized by the German government and injected with 3 billion euros of fresh capital, is continuing to cause problems for German politicians and economic leaders. The bank is set to receive 7 billion euros more before the year's end but, according to media reports, another 16 billion euros of losses that have not yet "materialized" are lurking in the bank's books.

Those least responsible for crisis are worst affected

Three people sifting though cocoa beans
Prices for commodities from developing nations have slumpedImage: dpa - Bildarchiv

While Wall Street thinks it has recovered and industrialized economies anticipate they will soon follow, the global crisis may continue to affect those least responsible for it.

The downturn has hit the African continent especially hard despite it not being involved in its making, civil society organizations gathered in the capital of the Democratic Republic of the Congo heard at the fifth people's summit of the Southern African Development Community (SADC).

Commodity prices have all but collapsed, NGOs told the gathering. Among others, cotton farmers' earnings have been whittled down to just a quarter of what they used to be before the outbreak of the financial crisis last year.

rri/dpa/AP/Reuters/IPS

Editor: Sean Sinico

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