To say that was risky is an understatement: at such levels, a 2% fall in the value of a bank’s assets is sufficient to wipe out its capital and render it insolvent. Remuneration, especially the structure of financial sector bonuses, encouraged excessive risk-taking, and distorted the aspirations and career choices of too many talented young people. Investors, banks and regulators had been swept up by the apparent success of modern finance. When investors realised that many of the assets that banks held on their balance sheets were opaque and hard to value, there was immediate and justifiable concern about the solvency of many of those banks. At the end of 2008, these two fundamental factors culminated in the worst financial crisis in history. In the six months after Lehman Brothers collapsed world trade fell by nearly 20% – a faster decline than in the Great Depression. Around the world, the same telling phrase was repeated: economic activity was “falling off a cliff”. In its statement to the London G20 summit in April 2009, the international trade union movement argued that “The first priority for G20 leaders must be to restore confidence by halting the freefall in world growth”. That has been achieved. World output grew by 4% over the past year. And in the United Kingdom, growth has been somewhat faster than anticipated a year ago. Nevertheless, total UK output remains around 10% below where it would have been had the crisis not occurred. So how do we prevent this happening again?
Mervyn King: Address by Mervyn King to Trades Union Congress Address by Mr Mervyn King, Governor of the Bank of England, to the 2010 Trades Union Congress, Manchester, 15 September 2010. *  *  *  President and Congress I want first to thank you for inviting me to address Congress. Members of your General Council have made a huge contribution to the Bank of England by serving on our board – the Bank’s Court. Carrying on that tradition today is Brendan Barber. By bringing a distinct and important perspective to our discussions, Brendan has helped us through some extremely turbulent times. I am grateful to him. Recent times have indeed been turbulent. After a decade and a half of stability, with rising employment and living standards, came the crisis and recession – the biggest economic upheaval since the Great Depression. Before the crisis, steady growth with low inflation and high employment was in our grasp. We let it slip – we, that is, in the financial sector and as policy-makers – not your members nor the many businesses and organisations around the country which employ them. And although the causes of the crisis may have been rooted in the financial sector, the consequences are affecting everyone, and will continue to do so for years to come. Thankfully, the costs of the crisis have been smaller than those of the Great Depression. But only because we learnt from that experience. An unprecedented degree of policy stimulus, here and abroad, prevented another world slump.