Lessons To Learn From The Financial Crisis

The most obvious lesson from this crisis is the fact that banks have been lending excessively and irresponsibly

First Published Date: July 12, 2009

The credit-led financial crisis in which the world still languishes at present carries some quite profound lessons for us all, much though there will be people queuing up to say that they saw it all coming all along. The undeniable truth is that the world has been hit by this crisis in a way that has left few people untouched – and if it could happen at a time when we are supposed to know more about finance, and about everything, than we all knew a decade or two ago, then what is to stop it happening again? Well, this is what our government are looking at, and along with them the governments of several other countries. Will this put an end to future recessions? Not indefinitely, but we’ll see how long it holds them off.

There were numerous possible reactions when this whole house of cards came crashing down. One was schadenfreude, and it was much in evidence from people who had held on to their jobs and full pay, directed towards those who had made their living from the financial sector. This in all honesty was completely unhelpful – even though the whole crisis was down in some part to the banks, banking policy is dictated not by the guys at the bottom who lost their jobs, but by the people at the top who miraculously survived. Another possible reaction would be to look at this crisis and see what we can learn from it. If we can learn from our mistakes, we can stop them happening in the future, can’t we? Or is it that we will know them when we make them again?

The most obvious lesson from this crisis is the fact that banks have been lending excessively, and irresponsibly, to people whose hopes of actually maintaining the payments were always flimsy. It seems absurd now that the banks could play so free and easy with their money. Was a crisis like this not completely inevitable in the circumstances? The banks have promised that the lesson is learned in any case, and it is noticeable that they have been less keen to lend to anyone recently. Is that really a sign that they have learned the lesson, though, or a sign of over-correction? Who knows?

As people, it would be hoped that we have learned that credit is like a firework – to be treated with caution, but capable of facilitating wonderful things if handled correctly. It is tempting to use borrowing to fund our dreams and our pleasures, but there is always the danger that it could lead to a situation that no-one really enjoys. It shouldn’t need to be a matter of advice – spending money you can’t really afford will lead to bad things! – but if the message needs to be reinforced, just look at the newspapers every day. Do we really want to keep reading about companies going to the wall? Apart from anything else, that is becoming very tedious. Let’s start making good news.

To streamline and minimize blog maintenance, I will be discontinuing maintaining the Canadapersonalfinancewebsite.com website (however, I will still hold the domain). I will gradually move all articles from this site to A Dawn Journal. This article originally published on the above website on July 12, 2009.