How to Fight the Next Crisis

Ten years after the fall of Lehman Brothers, trouble is brewing again, though this time the U.S. hasn’t slid into a recession. In fact, growth is so strong in America that the Federal Reserve is trying to preempt inflation by raising interest rates, and that’s attracting speculative investors from the rest of the world to the U.S.—to the detriment of emerging markets. Argentina and Turkey are most under pressure, followed by Brazil, India, Indonesia, Pakistan, Russia, South Africa, and others. “We are having a confidence crisis in emerging markets, with some level of contagion being present,” says Pablo Goldberg, a portfolio manager at BlackRock Inc. in New York, said Sept. 4. (He says the climate has improved a bit since.)

Regardless of the source of trouble, the question is whether the world is better equipped than it was a decade ago to cope with another financial crisis, whenever it arrives. Banks in most countries are more prepared for a downturn. But when a crisis does inevitably break out despite new layers of safety measures, central bankers and finance ministers will be no readier to battle the flames. In some respects, they’re even less ready—their hands have been tied by new laws and opposition from the Left and the Right to bailouts.