To understand the dangers that go along with Western sanctions against Vladimir Putin’s Russia, says Patrick Jenkins in the Financial Times, it’s worth remembering the collapse of Lehman Brothers. When US Treasury Secretary Hank Paulson decided to let Lehman go to the wall – while bailing out the rest of the Wall Street banks – he caused “the disorderly collapse of one of the most interconnected financial institutions in the world”. This made the 2008 crisis far worse and escalated the scale of interventions required by governments and central banks. Then, as now, the “moral imperative” to punish “perceived misdeeds” was nearly impossible to resist. But the ramifications of intervening in the ultra-complex and interconnected world of global finance were “dire”.
Aside from some mild talk of “blowback” for Western economies, the true impact of sanctions on Russia is not well understood. Beyond the obvious risk of military escalation, and the already-felt pain of rising petrol prices, there is the spiralling cost of “wheat, grain, nickel and a host of other commodities”, threatening the affordability of everything from daily bread to “climate disaster mitigation”. Russia may default on its debts as soon as today, global supply chains involving Russian goods will be disrupted. The world should remember Lehman and brace for a global financial and economic shock.