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The Telegraph/UK

Lehman Collapse: 12 Months on and the Financial System Isn't Fixed, Warns Stiglitz

Telegraph Staff

Joseph Stiglitz, 2001 Nobel Laureate in Economics, and President of the Commission on the Measurement of Economic Performance and Social Proges, arrives at the Elysee Palace in Paris September 14, 2009 for a meeting with France's President Nicolas Sarkozy and the Commission on a new method of measuring the economy and assessing well-being. (REUTERS/Philippe Wojazer)

Mr Stiglitz, who is former chief economist at the World Bank, told Bloomberg News that "in the US and many other countries, the too-big-to-fail banks have become even bigger.

"The problems are worse than they were in 2007 before the crisis."

Mr Stiglitz joins the growing debate about how best to avoid a repeat of the worst financial crisis in decades without choking off growth in the financial services industry. His view has been echoed by former Federal Reserve chairman Paul Volcker, who has advised President Obama's administration to curb the size of the banks.

A year on from the demise of Lehman and the month of severe financial stress it triggered, there is little consensus among governments on how to reform the system. French President Nicolas Sarkozy has been most aggressive in his plans to target bankers' pay, but has failed to win the backing of the US.

Mr Stiglitz is today presenting a report to President Sarkozy on the lessons that need to be learned from the crisis. The leaders of the G20 countries meet in Pittsburgh on September 24 and September 25 and the reform of the world's financial system, along with the state of the global economy, will be top of their agenda.

"We aren't doing anything significant so far, and the banks are pushing back. The leaders of the G-20 will make some small steps forward, given the power of the banks" said Mr Stiglitz. "Any step forward is a move in the right direction."

Mr Stiglitz also played down the hope that the American economy still quickly resume its role as the engine of the world economy.

"We're going into an extended period of weak economy, of economic malaise. The US will grow but not enough to offset the increase in the population," he said.

"If workers do not have income, it's very hard to see how the US will generate the demand that the world economy needs."

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