I am considered a successful human being, if I accumulate wealth beyond what any of my neighbours have… irrespective of whether I need any of that wealth or not. If wealth be considered finite, then I could only become richer by making my neighbours poorer. Now imagine an entire society trying to do this to each other!
When humanity defines success by the accumulation of wealth, what is lost is humanity itself. Why should it be ok to hoard wealth beyond what a man can ever spend in his lifetime? Not only is it ok, it is celebrated.
Resources are finite. We can only get better by cooperating, and learning to live together… learning & sharing. When some are engaged in the profession of sucking all resources from everyone and everywhere they could, they become a destructive force in the economy.
Have we learnt the lessons of the financial crisis? [2]
Gillian Tett looks at why the warning signs were missed and where the next crash may strike
One day in the early summer of 2007… Greenspan’s successor, Ben Bernanke, had just declared that problems in the subprime mortgage market were so "limited" they would not create "significant spillovers".
A decade earlier… Tokyo plunged into its terrible banking crisis, sparked by $1t of bad loans left by Japan's 1980s real estate baburu keiki or bubble.
the perils of banker hubris… government officials often downplayed problems — both to themselves and to voters
money markets were behaving in ways that suggested that investors and institutions were losing trust in each other
The IMG calculates that between 1970 and 2011, the world has suffered 147 banking crises. Some were tiny… Others were huge:
The US 2007-08 crisis was so big that it raised public debt by 24% of GDP
the 1997 Japanese crisis, the debt hit was 42%.
But whatever their statistical size, crises share two things. First, the pre-crisis period is marked by hubris, greed, opacity — and a tunnel vision among financiers that makes it impossible for them to assess risks.
Second, when the crisis hits, there is a sudden loss of trust, among investors, governments, institutions or all three.
Though it is 10 years since… the questions are still pressing: why do we appear destined to suffer crises over and over again? Why can’t we learn from the past? And what does that mean for where the global system is heading today? After Japan and America, which part of the world will produce the next drama?
like many others, I initially thought I was witnessing the financial equivalent of the internet revolution, a wave of wild innovation that would improve all our lives.
For centuries, the craft of banking has revolved around the relatively simple business of collecting deposits from companies, governments or consumers, and then using this money… to make loans.
previous generations of bankers had hung on to their loans, like farmers tending a crop
late 20th century financiers became more like butchers making sausages. They started to buy loans from anywhere they could (including each other), chop these up, and then repackage them into new instruments that could be sold to investors with fancy names such as "collateralised debt obligations" (CDOs).
Every innovation revolution needs a sales patter, and this was no exception: the bankers told themselves that this slicing and dicing would make the financial system much safer… In the past, banks had gone bust when borrowers defaulted because the pain was concentrated in one place; slicing and dicing spread the pain among so many investors that it would be easier to absorb. Or so the theory went.
But there was a catch. Since the techniques that bankers were using to slice and dice the loans were desperately opaque, it was hard for anyone to know who held the risks. Worse still, because bankers were so excited about repackaging debt, they were stimulating a new mania for making loans, seemingly with government blessing. What all this financial innovation concealed was an old-fashioned credit boom…
And what happens after a boom? Inevitably, there follows a bust.
I suppose, we need to understand economic cycles. Booms and busts are and need to be cyclical for the economy to continue to be healthy. Regular busts are a necessity. Just like we all need a regular downtime, so does a healthy economy. Kicking the can further and further away to avoid a bust is only increasing the pain and allowing the downright corrupt to burden everyone else.
"There is a dynamic which pushes banking and the penumbra of banking to excess, over and over again." Paul Tucker
Complexity made this worse… power-points drenched in Greek letters, algorithms and jargon, like a cult speaking a secretive holy language. But as the presentations unfolded, it was clear that very few investors or regulators — or even the bankers themselves — truly understood how the products worked.
It was easy to see why the bankers accepted this: the bubble was making them rich. "There was huge complacency on all sides… The governments threw a huge pot of honey into the middle of the table and told everyone we don’t have to think about the bees." Bill Winters
What was more surprising was that regulators also seemed reluctant to rock the boat.
"It's a joke" one banker said. It looked uncannily similar to the baburu days in Tokyo, when people sprinkled gold leaf on their sushi and nobody imagined that real estate prices might fall.
The authorities tried to rebuild confidence. But shattered trust is hard to restore — particularly when governments or bankers try to sweep problems under the carpet, say with creative accounting tricks. "You can put rotten meat in the freezer to stop it smelling — but its still rotten."
American attempts to reassure the markets, turning to some of the same tricks the Tokyo government had once tried — and failed — to use a decade before.
Led (and fed) by the Central Bankers cartel. Their bankster pals would not get cheap credit from anywhere else but government/taxpayer coffers.
The measures shocked many voters — and investors. But not my friends in Tokyo: Japan had eventually used similar moves itself to end its own 1990s crisis; so had many of the governments involved in the other 147 crises that the IMF has identified.
"These crises happen again and again. We can understand the mechanics, if we want. But can we learn?" Ray Dalio
But finance is still not entirely "fixed": non-bank investors have been taking dangerous risks, partly because super-loose monetary policy has made borrowing so cheap. And then there is the issue that the bankers joked about… debt. One remarkable feature of the past decade is that between 2007 and 2017, the ratio of global debt to GDP jumped from 179% to 217%, according to the BIS.
Oh well, somebody seems to be winning! And it's not the taxpayer or the masses.
the debt boom is among risky companies and governments, ranging from Turkey… to America
Meanwhile in China, gross public and private debt has doubled in the past decade to about 300% of GDP. This surpasses even Japan's wild 1980s debt binge.
That trillion-dollar question will not be answered for several years.
Never before have those financial history books mattered quite so much.
[1] Financial crisis: Are we safer now?
[2] Have we learnt the lessons of the financial crisis?
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