POST TIME: 10 September, 2018 00:00 00 AM
World unprepared for next financial crisis, says Ex-IMF chief Strauss-Kahn

World unprepared for next financial crisis, says Ex-IMF chief Strauss-Kahn

PARIS: The world is less well equipped to manage a major financial crisis today than it was a decade ago, according to Dominique Strauss-Kahn, a former chief of the International Monetary Fund (IMF), reports AFP.

In an interview with AFP, the now-disgraced Strauss-Kahn—who ran the fund at the height of the 2008 financial meltdown—also said rising populism across the world is a direct result of the crisis.

Strauss-Kahn resigned as head of the IMF in 2011 after being accused of attempted rape in New York, although the charges were later dropped. He settled a subsequent civil suit, reportedly with more than $1.5 million.

Q: When did you become aware that a big crisis was brewing?

A: When I joined the IMF on Nov 1, 2007, it became clear quite quickly that things were not going well. That is why in January 2008, in Davos, I made a statement that made a bit of noise, asking for a global stimulus package worth two percent of each country’s GDP. In April 2008, during the IMF’s spring meetings, we released the figure of $1,000 billion that banks needed for their recapitalisation.

Q: Did the Bush administration grasp the danger of Lehman Brothers going bankrupt?

A: No, and that is why Treasury Secretary Henry Paulson decided not to save Lehman, because he wanted to make an example of it in the name of moral hazard. Like everybody else, he considerably underestimated the consequences. Allowing Lehman to go under was a serious mistake. Especially because only a week later they were forced to save the insurer AIG, which was much bigger.

Q: Ten years on, are we better equipped to deal with a crisis of such a magnitude?

A: No. We have made some progress, particularly in the area of banks’ capital adequacy ratios. But that is not nearly enough. Imagine Deutsche Bank suddenly finding itself in difficulty.

The eight percent of capital it has at its disposal are not going to be enough to solve the problem. The truth is that we are less well prepared now. Regulations are insufficient.