The Great Debate UK
The blind self-belief of financiers can't be abolished. Neither can cycles in the industry. But two years after the disastrous failure of Lehman Brothers, regulatory shifts have the potential to reduce the impact of a repeat. The challenge for politicians and watchdogs is not to go soft.
That's what happened before. A munificent Federal Reserve helped stoke a leverage bubble that masqueraded as "the Great Moderation." Meanwhile, financial regulators of all stripes dozed off, encouraged by lawmakers too cozy with Big Finance.
Then there was the costly bust. The swing of the pendulum from greed to fear has produced useful results. One is an effort to create powers for the orderly closure of a firm like Lehman. Tougher capital standards, imposed by market forces and regulators alike, also make sense. New rules and greater scrutiny for the over-the-counter derivatives market, one source of the interconnectedness that made Lehman's failure so painful over and above its size, were overdue, too.
Yet supervisors didn't use their already existent powers energetically enough to crimp the activities of institutions later deemed too big to fail. For all the Basel III talk of building capital buffers in good times, today's response to the financial crisis -- not to mention what little penitence there is on the part of banks -- looks pro-cyclical.
from UK News:
By Clara Ferreira-Marques
Prudential's ill-fated Asian adventure has left the company and its management badly bruised. But it has offered at least two valuable lessons for ambitious executives tempted onto the acquisition path by post-crisis, "once-in-a-lifetime" deals.
Lesson one: It's not 2007 any more, Toto.
Lesson two: Disregard shareholders at your peril.
On the first, bold mega-deals that once impressed the market now seem to mostly unsettle both investors and regulators.
BP's deepwater debacle is shaping up as Lehman Brothers in the oil patch. The toxic ingredients that led to that Wall Street firm's implosion are abundantly present in the British energy giant's Gulf of Mexico fiasco: flawed risk management, systemic hazard and regulatory incompetence.
And as in the financial industry, the policy response will almost certainly lead to energy's biggies getting even bigger.
- 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. -
If the financial crisis were a theatre production of Hamlet, we would now be at the end of Act III.
The collapse of Lehman Brothers on September 15, 2008, was the largest bankruptcy in U.S. history, sparking a crisis that paralysed the global financial system. But how significant was the bank’s collapse to the UK economy? What about other events such as Northern Rock? Professor Wood argues that the fall of Lehman was just one of many symptoms of the recession in this country.
-Angus Rigby is CEO of TD Waterhouse. The opinions expressed are his own.-
Volatility has been the name of the game since Lehman’s collapse, an event which sent shock waves through the global financial markets. The ripple effect on correlated sectors sent share prices on a roller coaster ride of unpredictable fluctuations throughout the year – and yet at the same time this very volatility paved the way for the profit-taking retail trader, if they got their timing right of course.
Volatility, a dirty word for the long term investor, has been the fuel driving traders who successfully shorted on peaks and bought on lows. Even the Bank of England cutting rates by 1.5 percent to 3 – the biggest single cut since 1992 – failed to slow down individual traders. In fact, in many ways, this has been The Year of the Retail Investor.
In the wake of the widespread chaos that accompanied the bankruptcy of Lehman Brothers last September, regulators have sought to find a better way to unwind global financial giants. One approach is that the banks themselves should prepare for their own orderly demise -- a kind of "living will".
That idea has been gathering steam of late. The G20 group of finance ministers and central bankers meeting in London over the weekend agreed to require "systemic firms to develop firm-specific contingency plans."
In 1873, Walter Bagehot wrote that "the business of banking ought to be simple; if it is hard it is wrong." He would have struggled to recognize today's banking system.
It is not just ever more ornate derivatives that bend the mind. Financial firms themselves have become fabulously complicated. Citigroup lists 2,061 subsidiaries and affiliates while the institutional chart of JPMorgan Chase is 267 pages long.
- Dr Martin Clarke, Director of Leadership Development Programmes at Cranfield School of Management in the UK. The opinions expressed are his own. -
With an understandable focus on the short term demands of recession, the leaders’ role of generating debate about future priorities is never more crucial. In difficult times the tendency to force decisions, to be seen to act, can often mean an organisation’s strategic assets can get thrown out with the bath water.
It's time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group's new $7 million chief executive.
Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer's corporate offices in New York.