This past Friday the Academy Building of the prestigious Dutch Leiden University filled up with students eager to know more about the financial crisis and its consequences.
The master class, organized by the student council of the local Rabobank branch, included some distinguished speakers: Ir. Merel van Vroonhoven, Chairman of the Executive Board of the AFM (The Netherlands Authority for the Financial Markets), Drs. Pim Mol, director of Communication and Corporate Affairs of Rabobank Nederland, and Prof. mr. Drs. Matthias Haentjens, professor of Financial Law at Leiden University.
Though all three held interesting and insightful presentations, it was Ms. Van Vroonhoven who managed to captivate the audience best, with a relative simple but nonetheless enthralling story that combined her personal experiences with general lessons to take from the financial crisis.
Non-surprisingly, the number one question arising during and after the crisis was: who has done it? The reckless bankers, the failing regulators, the negligent accountants, the sleeping politicians or the ill-informed consumers? According to Ms. Van Vroonhoven it is simple: all of the above.
She identifies the mentality of all people involved as the primary cause of the financial malaise. It is the result of people who forgot to think properly about what they are doing and what they are supposed to be doing. The financial sector that was too busy ensuring its short-term success, hereby forgetting to properly inform their customers and clients about what exactly they were selling them. The consumers in turn are not blameless either: in stead of making well-informed decisions they let themselves be easily and sheepishly persuaded into accepting offers that would not turn out to be in their benefit. In the same manner basic flaws can be identified in the behaviour of each of the blamed groups mentioned above.
So what has changed? Obviously, a lot of extra regulations have been imposed. But though helpful, it is not in these words on paper that we should look for the answer. As the director of the AFM, Ms. Van Vroonhoven has conducted a lot of talks with notable representatives of the groups involved. According to her, what stood out in these conversations was the seeming willingness to change. The alteration of mentality she so passionately advocates seems to have gotten through into the heads of those responsible. But she warns that this is just the first step. What happens when the crisis and its impacts have faded in a few years, and the tendency to fall back on old ways resurfaces? The answer, according to Ms. Van Vroonhoven, is simple: diversity.
Only by making sure that in the future the people making the decisions are not a uniform clique of same-minded individuals, but a dynamic and diverse group of critical thinkers that are not afraid to point out each others flaws, the faults of the past can be avoided. Thus, she concludes, the answer to the crisis should be diversity, a critical attitude and innovation. Words not wasted on the young ears of the student crowd present.
We at GRC are eager to know what you, our members, an incredibly diverse and experienced community, think about the subject. Are the issues pointed out by Ms. Van Vollenhoven really the most important things to learn from the crisis? Or should other questions be posed and/or different answers given? Please feel free to leave your opinion!
Replies
The analysis is surprisingly very accurate even if the summary seems a bit too simple as some very important items are not taken in account as the flaws in the accuracy of risk evaluation models and the legal misleading conduct of the concept of true sale that allow the designers of a product to be allowed not to have any responsibility in the construction of the products sold;as if the car manufacturer could sale car without brakes.
The answer through diversity is also accurate but the ways the regulation is monitored conduct to the opposite as the trend is to apply the same rules everywhere. This trend that is driven only by the faith that the main problem is competition, and so to conduct to a fair competition the same rule as to apply to everybody.
That belief doesn't take in account the fact that instead of making the financial system more resilient as nature do by multiplying the solutions, this conduct to more instability as the main drivers of the financial system are now bigger that they were before 2007. A Noe effect as stated by B. Mandelbrot will conduct to the end of those Dinosaurs.
The diversity answer that is the only way to prevent such a catastrophe is not used even if understood as such.
Note: What is missing in this article was that the financial elites benefited one more time by this current crisis that begun in 2008. The below article explains in more detail how and why the financial elites benefited even more with the financial crisis.
Enrique Suarez
World Economy in Crisis. Six Years since the Wall Street Crash. Prevailing Financial Disaster
By Nick Beams
Global Research, September 15, 2014
Theme: Global Economy
"Wall Street's 9/11": Did Lehman Brothers Fall or Was It Pushed?
On this day in September 2008, the collapse of the US investment bank Lehman Brothers sparked the greatest financial crisis since the Great Depression of the 1930s. Within days of the bankruptcy, the entire American and global financial system was on the point of disintegration.
Reporting on the Lehman disaster on September 16, 2008, the World Socialist Web Site noted that it marked “a new stage in the convulsive crisis of American capitalism.”
The WSWS continued: “A sea change is unfolding in the US and world economy that portends a catastrophe of dimensions not seen since the Great Depression of the 1930s.” It warned that for the working class, the financial meltdown meant “rapid growth of unemployment, poverty, homelessness and social misery,” while “many of those who precipitated this economic disaster… will profit handsomely from the debris they have left behind.”
That analysis has been entirely confirmed. Six years on, the world economy has not only failed to recover, it is experiencing continued stagnation, with the ever-growing threat of a new financial crisis. In the euro zone, economic output has yet to reach the levels it attained in 2007; Japan stands once again on the brink of recession; and Chinese economic expansion is faltering. The growth rate in the US economy is now 16 percent below that of 2005–2007, with cumulative output losses totaling about 80 percent of gross domestic product.
But despite stagnation in the real economy, stock markets have hit record highs, boosted by the provision of ultra-cheap cash from the US Federal Reserve and other central banks to the financial institutions and banks responsible for the crisis—a continuation of the policy initiated in the immediate aftermath of the Lehman collapse.
For the working class all over the world, the past six years have brought lower wages, rising social inequality and outright impoverishment. In the United States, median family incomes fell by 5 percent in real terms between 2010 and 2013, supposedly years of “recovery.”
The financial crisis revealed a level of lawlessness on an unprecedented scale, as major finance houses and banks sold complex financial products they knew were doomed to fail and then profited on the outcome. Facts and figures produced in a US Senate report in 2011 revealed that these were nothing short of criminal operations.
But not a single top executive of a major US or international bank has been prosecuted, let alone jailed. The attorney general in the Obama administration, Eric Holder, has specifically ruled out any prosecution on the grounds it could jeopardize the US and possibly the global banking system.
In other words, finance capital and its speculative and parasitic activities are a law unto themselves. This culture of criminality and illegality in finance finds its expression in politics: the illegal drone operations and assassinations carried out by the Obama administration, including of American citizens; the mass spying by the National Security Agency (NSA) and its equivalents around the world; and the strengthening of the apparatus of a police state.
The ongoing breakdown of the global economy underlies the growth of militarism, which is creating the conditions for the eruption of a new world war. Here the first place is occupied by the United States.
The economic problems and contradictions of American capitalism, so graphically revealed in the collapse of 2008, have only increased since then. This is the economic impetus for war, as US imperialism seeks to use its military might to reverse its economic decline and assert its global hegemony.
While the connections between economic trends and political developments are never direct and immediate, but always complex, there is nonetheless a profound significance to the fact that this year, one of deepening economic malaise, both the German and Japanese governments have broken with the post-World War II geo-political framework.
The German ruling elite, powerful sections of the mass media, and the foreign policy establishment are conducting a campaign to assert Germany’s role not only as the dominant power within Europe, but as a world power—a return to Hitler’s agenda of the 1930s.
Likewise, the right-wing nationalist government of Shinzo Abe in Japan has “reinterpreted” the country’s constitution to allow Japan to play an international military role.
The significance of these events, in which three of the major imperialist combatants of World War II are asserting their global role, is unmistakable. Six years into the global economic breakdown, the major powers, facing contracting markets and stagnant or negative growth, are determined to fight for their interests by military means.
The drive to war is accompanied by militarism at home. The ruling classes everywhere know they have no economic solution to the ongoing crisis of the profit system.
As a report prepared by the World Bank, the Organization for Economic Cooperation and Development and the International Labor Organization for the upcoming G20 summit stated, economic growth will “remain below trend with significant downside risks for the foreseeable future,” while there is “no universal formula for creating productive, quality jobs.”
Living in fear of a coming social explosion, the ruling classes everywhere are organizing their repressive apparatuses. The police-military operation in Ferguson, Missouri was by no means a purely American phenomenon, but reflected the preparations being made in every country to confront the social consequences of another financial crisis, the conditions for which are well advanced.
On Sunday, the Bank for International Settlements (BIS), sometimes known as the central bankers’ bank, warned in its quarterly review that the present lack of volatility in global financial markets was not a sign of strength, but rather a herald of new dangers.
As BIS chief economist Claudio Borio told reporters in a briefing on the review: “It all looks rather familiar. The dance continues until the music eventually stops. And the longer the music plays and the louder it gets, the more deafening is the silence that follows,” when markets become illiquid precisely at the moment “when liquidity is needed most.”
The day after the Lehman crash, the World Socialist Web Site set out a clear political strategy:
“The entire financial system must be taken out of private hands… and subordinated to the social needs of the people and dedicated to developing and expanding the productive forces in order to eliminate poverty and unemployment and vastly improve the living standards and cultural level of the entire population.”
Six years on, the fight for this perspective has become even more urgent as large sections of the working class, in the US and around the world, have either been impoverished or seen their living standards slashed, and a generation of workers, students and youth that has come of age since then faces a future under capitalism of poverty and war.
That is an interesting question as to where the blame lies in relation to the financial crisis. I have read countless articles from regulators, academia and so forth. All articles have common demonimators in relation to their views on why the crisis unfolded. However, it doesn't mention one word in any of the documents which supersedes everything, it is called 'Greed'. It appears that nobody wants to admit the obvious human failing. Unfortunately, very significant damage has been done to the entire economic system with the less fortunate in society paying the heaviest price. The EU cannot seem to agree anything and one could well argue that the EU could now be branded as the continent with the lost decade. If major strides are to be made in financial regulation, there must be harsher measures adopted to rid the culture of excessive risk taking by all financial institutions. Clearly, regulatory fines are just incidental these days as the scale and frequency of them are staggering. I believe that punitive measures should also include significant impact for the top tier management of such institutions. Will we get to this place at anytime soon? In risk parlance, the indicators are weak or extremely hazy at best.
What do they all have in common?
They must keep the status qoue.