The London Paper – 28 Aug 2009
Almost exactly two years ago we experienced ‘the day the world changed’ as Adam Applegarth, former chief executive of the doomed Northern Rock, described it. On that day the French bank BNP Paribas halted withdrawals from three of its investment funds that were exposed to US sub-prime mortgages. Credit markets began to freeze soon after and we subsequently entered the first global recession since World War Two. If Winston Churchill is right that “those who fail to learn from history are doomed to repeat it” then we must surely try to understand the lessons from this financial crisis. There are many but here are a few I find quite interesting:
1. “Experts” talk crap. Very few financial analysts and journalists predicted this crisis. I’d trust the average financial analyst as about as far I could throw his Ferrari … and I should know, I was one for 12 years.
2. Regulators and politicians are not to be taken seriously. The Bank of England’s August 2007 inflation report stated that the lowest possible growth for the economy in 2009 would be 1% (e.g. not a recession). This isn’t reassuring considering that it sets interest rates based on these forecasts. Of course, most politicians were too busy using tax payers money to clean their moat or watch grot vids in hotel rooms to predict anything worthwhile.
3. Boom and bust is the way of capitalism. Humans are hard-wired to follow the crowd, especially when information is uncertain. Combine that basic urge with two of our main emotions, greed and fear, and it becomes clear that Gordon’s Brown’s vision of an “end to boom and bust” was about as prescient as my conviction that Wales would win the World Cup.
4. Globalization is a curse … and a blessing. This global recession was essentially created by the US property price bubble bursting. Hence Mary-Lou’s defaulting on her mortgage payments can lose a Taiwanese factory worker his job because global trade means that nearly all the world’s economies are inter-connected. However, an acknowledgment of this meant that countries’ politicians coordinated their recovery plans better than ever before. An absence of this cooperation helps explain why the 1930’s depression (that led to a world war) got so out of control.
5. Bankers are greedy scumbags who always win. Since most banks “are too big to fail” bankers can continue to rape us all with dubious hare-brained schemes safe in the knowledge that they’ll be bailed out when the proverbial hits the fan. In November Goldman Sucks will probably hand out the biggest bonuses ever in their 140 year history … you couldn’t make it up!
If nothing changes with the system something like this banker-created recession will happen again in the next ten years. Unfortunately, recent watered-down regulatory and political statements suggest that nothing has been learnt from this crisis. Sounds to me like we’re doomed to live in a world of boom and bust!