The Great Debate UK
The economic worst is past. But there are many issues left to worry about.
Start with the good news. GDP is now growing almost everywhere, while the unemployment rate is hardly rising anywhere. Businesses and consumers are less fearful. As much as half of the 20 percent decline in international trade has been erased.
Perhaps the best news is what has not happened. There have been no national defaults, countries dragged into political chaos, bitter divisions among the great powers or, with a few tiny exceptions, massive declines in consumption. The global political-economic-financial system is still in business.
Still, little has been done to address the three underlying and interlocked issues that tripped the world into financial crisis and recession. Their persistence helps explain why the recovery has been frustratingly slow up to now. If anything, they are all looking more intractable than ever. Meanwhile an old problem, unemployment, is rearing its head.
Start with financial dysfunction. At the micro level, there has been some progress. Regulators are becoming more active and banks are building up capital cushions. Risk models are being reconsidered. But viewed globally, the dysfunction has merely changed shape, becoming more threatening in the process.
from The Great Debate:
The effort to rein in banking bonuses, outrageous as they may be, is akin to banning glue sniffing because you are worried about the effects of intoxication.
There are, as the kids in the alley behind the high school can tell you, other ways of getting high.
So the watchdog can bark after all. Adair Turner, chairman of Britain's Financial Services Authority, says the financial sector has "swollen beyond its socially useful size". That is a striking statement for any financial regulator, particularly one that counts promoting London's financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.
Turner's comments, in a debate hosted by Prospect magazine, underscore the extent to which the crisis has upended the received wisdom among policymakers. For years they assumed markets were self-correcting, that financial innovation brought lasting economic benefits, and that regulators should think twice before getting in the way.
- 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.
from The Great Debate:
The financial crisis and wild gyrations in commodity prices have exposed deep conceptual flaws in the way academics and regulators think about commodity markets that will force a fundamental re-think.
In particular, they have demolished three key main planks on which the laissez-faire approach to regulation has rested: