The Great Debate UK
–Laurence Copeland is a professor of finance at Cardiff University Business School . The opinions expressed are his own–
The title says it all: “This Time is Different” by Reinhart and Rogoff tells how, for centuries, monarchs and, later, nation states have persuaded lenders to forget their chequered credit record and trust them yet again with loans on relatively easy terms. Although, by the nineteenth century, Western European countries had mostly reached a stage where their reputation seemed worth preserving at some cost, more or less from the moment they achieved their independence the South American countries established a tradition of default which they have guarded jealously to the present day, and as Reinhart and Rogoff make clear, Greece has defaulted at regular intervals ever since it became an independent nation in 1832.
Yet the tale they tell flies in the face of common sense, as well as running counter to the faith in the rationality of capital markets which used to be widespread but is now confined to a diminishing band of true believers. After all, with such spotty credit records, you would expect sovereign borrowers to be able to raise loans only by paying prohibitively high interest rates. Yet however much attention they may pay to credit history in their consumer lending division, when it comes to sovereign borrowers, bankers seem to believe with Henry Ford that history is bunk, or as the CEO of the world’s then-biggest bank put it in the 1970’s: “Countries don’t go bust”.
Sure enough, this year, lenders have finally come to their senses with respect to the euro zone countries, but not before our bankers – yes, the ones whose skills are as rare as those of a Lionel Messi and need to be rewarded accordingly – had lent them vast sums at interest rates that took no account whatever of their respective creditworthiness, and indeed they are still doing the same with their lending to Britain and America.
from The Great Debate:
Did the financial system blow up because it was built and largely operated by people with many of the characteristics of a mild form of autism called Asperger's syndrome?
As explanations for the crisis go, it's on the extreme side but forms an interesting counterpoint to the "blame the looting bankers" story line.
Regulators and bankers rarely see eye to eye. But at the World Economic Forum in Davos, the two sides were in surprising agreement about creating a global fund, financed by a tax on banks, to deal with future bailouts.
Mario Draghi, head of the Financial Stability Board, which is spearheading a new global financial regulatory regime under the auspices of the G20, floated the idea of a cross-border body to manage this fund. Surprisingly, several big European banks -- including Barclays and Deutsche Bank -- support it.
- Peter Vicary-Smith is the chief executive of Which? The opinions expressed are his own. -
Since the financial crisis in October 2008, a number of reports have looked at the causes and consequences of the crisis and suggested possible solutions, but they’ve all been written from the perspective of bankers.
A year after Lehman Brothers collapsed, policymakers are still getting to grips with the key question raised by the Wall Street firm's fall: how to ensure that the failure of a large bank does not jeopardise the entire financial system.
After much debate, politicians and central bankers are warming to the idea that banks should make preparations for their own failure. This plan -- memorably dubbed a "living will" by Mervyn King, governor of the Bank of England -- would allow regulators to wind down even large, cross-border institutions without putting public money at risk.
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
We could see it coming, couldn’t we? Those gigantic over-leveraged hedge funds were bound to come crashing down, as their massive bets turned sour, forcing them to default on their bank loans and bringing the banking system to its knees.