There’s no end in sight, it seems, to the financial crisis that started last summer. But how bad is it and what can we do to prevent another one? Prospect assembled a panel of top financial experts, including renowned investor George Soros, economic pundits Anatole Kaletsky and Martin Wolf, and Bank of England deputy governor John Gieve to discuss these questions. It considered who was to blame for the crisis, how much worse it may get, and how we can avoid asset bubbles blowing up in future.
The shock phase of the crisis may now be past, but the panel were sceptical about an early recovery, fearing that the conjunction of a banking crisis and a commodity boom may lead to stagflation (where growth slows while inflation rises) and this could cause a serious shock in the real economy. The financial authorities came in for some stick about the way the crisis was handled, and for being too slow to spot the dangers. Gieve, who was in charge of financial stability at the Bank of England (he has since announced he’s going to leave the post early), admitted the authorities would in future have to be far more intrusive in the way they regulated the financial system. Even poking around in banker’s pay packets (how much, and are they being paid in the right way?) is now something the watchdogs are thinking about.
Other panel members suggested more severe penalties for bankers who cause big losses by taking reckless bets. Soros even suggested they should be shot. There was general agreement that banks should be made to pay—perhaps through higher taxes—for the implicit guarantees they receive through the financial system that the authorities will bail them out if things go wrong. And there was a general feeling that it would be a good thing if the financial system shrank, although most doubted that it would do so. Lastly, looking to the future, the panel expressed some foreboding that this shock may prove to be insufficient to change behaviour. If that’s true, we may be on course for a mega-bubble that will, in Kaletsky’s words, “totally blow up the financial system.â€
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Dear Sir:
Anatole Kaletsky is always a welcome voice of reason in the din of any debate, especially one about the finances of the Christian West. We could take lessons on the subject of usury from our brethren in the Arab world – it may be that usury or the taking of vast amounts of interest on a loan has become a behemoth that nobody can control in a beleaguered West. Still it might also be worth saying what needs to be said in the current climate:
Adam Smith reminds us in his work The Wealth of Nations that wealth creation lies at the heart of any successful economy. It goes without saying that the financial crisis in the US may be a token of the deeper misgivings of the public there about interminable wars. In the Samurai tradition, it is said that no nation profits from a long war.
In Europe we can continue to fuel the myth that the US economy is the powerhouse behind ours, but it is fairer to say that Russian interests are more than important now. In any case, blocks occur in the euro-economies chiefly when wealth creation and personal profit margins are strangled by undue government taxation on essential goods and services. VAT originally was designed in a socialist super-state era to tax and penalise the public’s thirst for certain luxury goods, but now it is applied everywhere by a lean and hungry government machinery.
Who can now doubt the fact that gov.uk taxes on fuel were always and everywhere a severe dent on human rights – the right to drive a car is now inextricably tied up with the right to go to work for one’s family. These are human, social and civil rights – by what authority does a new labour government impose tax on our work sites?
All in all then the financial crisis in the US operates at different levels and for different reasons to the financial ripples in the euro-economies – we need to get back on message on this one. Russia is the key to any future success here. A juvenile super-dependence on a US that is rippled with self-doubt is looking absurd.
Apollo
Shot is a good place to start – but first the maestros of greed and avarice who provided US sub-prime mortgages should be ‘invited’ to buy back the properties and ‘gift’ them over to the mortgagees whose lives and dreams will have been shattered by their mean shenanigans
sub-prime mortgages should be ‘invited’ to buy back the properties and ‘gift’ them over to the mortgagees whose lives and dreams will have been shattered…
…often by their own shenanigans.
There are two parties in each loan application. In many cases, both the lender and the borrower “gamed” the system by inflating income and/or assets.
The fault ulitmately rests with the lenders (and the regulators) for allowing such but in many cases, the buyers share in that blame for knowingly taking on more debt than they knew they could afford.
This is an interesting point, but could depend also in which light we examine the money pushers, who will quite possibly have been significantly more literate, numerate and better informed than the vast majority of their misguided clients ?
Since Mervyn King’s reported decision not to reward ‘ reckless ‘
( at best ? ) investment by sub-primate bankers appears to have
been overturned, it would seem graceless to punish the gullible
super-poor instead ?
Perhaps an altruistic human rights lawyer might be inspired to investigate individual repo cases, scrutinise the facts and ’sue the banks blue’ to enlighten the regulators ( or did Pacino already make this one .. )
$195 trillion in stocks, bonds and bank assets according to the IMF, excluding real estate and OTC derivatives. $5 trillion in gold.
The unwinding is only beginning.
Adrian Burridge
CanadianInvestors.com
$195 trillion in stocks, bonds and bank assets according to the IMF, excluding real estate and OTC derivatives. $5 trillion in gold.
The unwinding is only beginning.
Adrian Burridge
CanadianInvestors.com
So-called great minds of finance and not one mention of peak oil. Also not mentioned, fiat money always goes to zero. I love the comment about GB in 15 years, as if there will still be such an entity.
Truth is, the illusion that fiat money is “real” is coming to an end. At the same time, the illusion of debt based capitalism is being seen for the aging relic it is. Without cheap energy, there is no interest to pay back the banks. Central banking, which was conceived for one purpose – to enrich the bankers, is being stripped of it’s veil, revealing simple truths to the world. However, don’t expect any of the august seers to tell that truth – though some may be victims of the illusion themselves.
Pull up a chair, get some popcorn and enjoy the show. We’re in the middle of a once in a century dust-up; who can say how it will turn out.
This was a very interesting roundtable. I think the guests have key points about the role of central banks and future regulation. I also think Soros brought up good points about the bearish macro factors weighing on the US and global economy.
Jonathan,
I have to say I was truly impressed, (and indeed blogged about it) I picked the magazine up on spec, having seen Wolf, Soros & Gieve mentioned on the cover. It didn’t disappoint.
Much appreciated, keep up the good work.
Banks should be made liable for the risks they take, but to suggest that it is the fault of free amrket economics is a farce. Sensible regulation to keep financial institutions in check, but let the market get on with it. Sub-prime mortgages have led to the whole episode , but they shouldn’t have been allowed in the first place, simply because of the massive danger sign hanging over the door saying ‘You won’t get you money back’.
Isn’t anyone aware that the whole thing started when the US Government under Clinton regulated the mortgage market in a manner forcing the banks to lend money to people nobody would otherwise lend to on the strength of property located in neighbourhoods nobody would dare to drive into? This was done through the 2000 Community XYZ Act, itself the result of howlings of unfairness and discrimination in the popular press. The banks responded by securitizing the inanely stupid loans off their balance sheets and presto let the voters pay for the stupidity of their elected officials. My prescription to those who now demand even more government intervention in this market: please read two more Thomas Sowell et.al. and call me in the morning.
” More than 90% of mortgage advisers investigated in a Which? Money probe were caught giving poor quality advice …In fact, just 4 out of the 50 advisers passed the Which? Money test ”
( Which? News 23 July 2008 )
http://www.which.co.uk/news/2008/07/mortgage-advisers-flunk-which-money-test-152750.jsp
You know, I was just thinking about doing something so I can benefit from all the meltdown and as luck had it I read your post. The timing is perfect for such a book. Very very very very eager to read how to Cash The Crash.
I can identify with a lot of the things you have written here.The blaming and complaining mode is particularly very common round me and it seems no matter what is said to mke people believe that they can change their lives by their thoughts and actions, they feel more comfortable blaming others for their lives.They therefore subconsciously settle for poverty and pass the bulk to the government, their parents, their bosses but never themselves.
I think it is easier to live poorly than to pay the price of success and since many people are lazy, they cannot give what it takes to attain success.
This post is enriching,I will send a link back to it from my blog.
tHANKS
Given the ” See no Evil – Hear no Evil – Speak no Evil ” style of the Darwinian monkey business at the banks enquiry
( how BBC News could describe today’s ego massage of the smug-you-like PM as ” a grilling ” suggests they were doped ), it still remains interesting that the usually terrier-like British Press appear to have over-looked the possibility of a potential conflict of interests between Lord Mandelson, lifelong friend and former employee of Lord Stevenson ( allegedly knighted by Blair for helping New Labour into power in 1997 ) having anything to do with the Lloyds / HBOS deal
http://news.bbc.co.uk/1/hi/special_report/1999/06/99/queens_birthday_honours/366887.stm
Presumably there was no actual need for HBOS’ Andy Hobbs to
have any conversations with the Treasury ( his reply to
McWotsit during Monday’s riveting episode ) given what might
be described as HBOS existing fur lined in-house connections ?
Could this over-sight be inspired by the fact that Lord Stevenson ( and his former business consultancy company SRU Ltd )- like Moreno, another former chairman of Pearsons –
and WOW ( walks-on-water )Lord Mandelson are now so well-connected at home & abroad ( inc throughout the BBC ) that
hacks and Labour politicians ( several of whom – including allegedly James Purnell – also used to work for SRU ) alike
fear the Job Seekers Allowance will be their only perk for raising any burning issues ?
Not quite the St Valentine’s Day Massacre hoped for – and eerily (see above) in her roll call of honours Marina Hyde fails to individually name the Lord Mandelson’s openly adored mentor,
Lord Stevenson altogether..despite his being Chair of the House of Lord’s Appointments Committee and the most obviously contemptuous of being interviewed at all
http://www.guardian.co.uk/commentisfree/2009/feb/14/marina-hyde
.. singling out instead Andy Hobbs, who along with James Cosby would both more likely than not have been appointed to HBOS and the FSA both ( if not sourced by the firm of headhunters with which Stevenson’s firm SRU had links ) at Lord Stevenson’s behest – and in part could be perceived sacrificial scapegoats – although this is no defence ; the fanciful plea that the bankers did not fully ‘understand’ the toxic financial instruments they were not only creating but dealing in is about as convincing as a heroin dealer pleading he thought his product was talcum powder
The nudist camp of emperor’s that control New Labour and it’s beneficiaries brook no criticism – of course they sacked HBOS regulator , Paul Moore ; expect he is mightily relieved not to have been invited to join Dr David Kelly ( remember, the poor chap who questioned WMD ) on a Teddy-bears picnic
The absolute power of Stevenson and his cronies throughout the marketing, media, financial business consultancy, and politics over the past 20 years cannot be underestimated – has anyone noticed the sinister way in which Mandelson scans waiting reporters and paps ? Presumably all the better to see if he contact them or their editors later ?
New Labour pretend to be Little Lord Nice nice – but cross them at your peril ; here’s a self-proclaimed left-wing policy wonk
(on BBC R4’s Libby Purves Midweek ) still running SRU :
http://www.capelland.com/pages/broadcasters/index.asp?CID=156
Last Thursday, when the mollycoddled Gordon Brown argued that
it was not ignoring the regulator but Financial Business Models that failed the banks, he might have been ‘plea-bargaining’
to try and distance himself from the self-serving hands that
led him into Downing Street – since even the smoke and mirrors Coutts account socialism they used to dupe the public with is now so beyond reasonable doubt
Perhaps therein lies the rub ? History tells us, socialism rarely pans out long-term because it relies on working against human nature rather than harnessing and working with it ( as better Tories such as Cameron and Boris Johnson try to do )
encouraging systematic corruption from unevolved artful dodgers who enjoy running Olympic circles around the electorate –
the resulting broken society inviting extremist parties to enjoy record membership and so the party is over – again ..
The search for blame over the financial crisis is fascintating, but surely futile. It should be obvious to the meanest intelligence, that if an economy is in trouble, you should look to the people in charge of that economy. As a once wise man said:
‘”A weak currency arises from a weak economy which in turn is the result of a weak government.”
I’m not sure Gordon Brown likes being reminded of his 1992 quote these days, but he wasn’t far wrong then and he’d be bang on the money now.’
Lifted from MSN. Remember to the strains of ‘Things can only get better’ Messers Brown and Blair promising and end to ‘boom and bust’, their naivete demonstrated a fundamental understanding of economics which should be mandatory in politicians, espcially at their level of seniority. Their arrogance in thinking they could put an end to economic cycles and lead us to permanent boom times.
For all the talk of sub prime lending, this again is a red herring. The final straw which led to the current crisis was in the extreme greed and stupidity of the banks, in buying back their own toxic debt, in the form of SDO’s (Securitised Debt Obligations), thus creating a situation where a small fall in property prices led immediately to a wiping out of their balance sheets.
Sure we should be looking at how we can reform the financial system, but we would be mad not to also look at how we can reform the political system, which has been responsible for policy over the past 12 years which has effectively bankrupted the country, whilst creating a whole new ‘uber-class’ of the well connected (See post by The Bolter).
Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.
By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?
So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.
The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one’s investments every 7 days (based on the specs you give the agent).
A system like this will make the financial markets work as smoothly as the local fruit market.