Warwick Congress: Reflecting on the Financial crisis of 2008

Warwick Congress prides itself on its unique ability to combine the disciplines of Law, Economics, Politics and Finance. Despite a commendable attempt to overcome the arbitrary lines between the subjects, delegates were left in little doubt of what lay centre stage; the economy and the financial markets. Likewise, the conference revolved heavily around the theme of ‘innovation’. Yet despite looking to the future, there was one event from the past that not one speaker I saw managed to get around; the Financial crisis of 2008. From the EU referendum and Trump’s presidency to the automation of jobs, it became clear that the crisis has been felt more widely than most had considered and has changed societies worldwide.

For those subscribing to such a view, the question of whether we have left the crisis behind is of great importance, and is equally challenging to answer. Luckily, Congress was on hand to provide a wealth of insight from a broad range of perspectives.

Paul Andrews: Secretary General, International Organisation of Securities Commissions

Members of Andrews’ organisation regulate 95% of the securities markets globally, making him one of the most influential observers of financial compliance anywhere in the world. Taking into account the intense scrutiny banking regulations have come under in the aftermath of 2008, it also makes his job one of the most controversial.

Andrews says that on his arrival at the organisation, he immediately noticed that too much was going on. Regulators, struggling to grapple with increasingly complex financial products, were trying to be all things to all people, and failing to focus on the ‘little guy’. Putting the spotlight on consumer protection since has been a true success, he argues. He has a point. New rules are passed all the time; ‘Ring Fencing’ next year will require banks to separate their retail and investment divisions, protecting the cash of individuals from riskier practices.

Andrews is keen to stress that his role as a regulator is not to throttle innovation but securitise it.

The self-described ‘recovering lawyer’ still has a fine attention to detail, and homes in on specific weaknesses in our system which threaten stability a decade on. Bitcoin is a particular worry, but the technology behind it has potential. Relying on algorithms makes investments more efficient, yet presents conflict of interest dilemmas.

Andrews is well aware that the room is packed to the rafters with passionate advocates of the new technology, and as such is keen to stress that his role as a regulator is not to throttle innovation but securitise it.

Perhaps the most insightful moment though comes after a delegate asks if the government bailouts of 2008 make it more likely banks will behave irresponsibly again. Andrews cannot say, but he is confident that in the event of another such Financial crisis, our leaders won’t blink in saving the banks again.

Professor Gabriel Felbermayr, Professor of Economics, University of Munich

The globally renowned economist is at Congress 2018 to discuss the recent rise of populist movements worldwide. The political shocks of 2016 though are not, as one might expect, at the forefront in his argument. History, he says, will dismiss Brexit and the election of Donald Trump as effects of a much deeper phenomenon.

The real turning point will be seen as the Financial crisis and the collapse of the Lehman Brothers, he argues. Rather than getting bogged down into the detail of the financial products and mismanagement that triggered the meltdown, Professor Felbermayr concentrates instead on what it meant for ordinary people. The globalised capitalism that characterises our economy, he says, provides overwhelming aggregate gains in the form of lower consumer prices, greater choice and wealth creation.

The shocking practices of banks and their bailouts exposed that there are winners and losers of our economic system.

The shocking practices of banks and their bailouts exposed though that there are winners and losers of our economic system, something that has never been realised on such a scale before. The professor’s suggestion is simple; we must continue to pursue globalisation and interdependency. How should we sell this to the losers? That is a more difficult question.

Jean-Francois Mazaud, Head of Private Banking at Societe Generale

Societe Generale’s Head of Private Banking pulls no punches in his analysis of the Financial crisis. From the outset, he is clear that the ramifications of 2008 are still being felt throughout the industry. Banks operate in a totally different climate today, he argues, and change doesn’t look likely to stop especially with regulation like MIFID2 coming down the line.

Improvements, he says, have been seen in client focus and in tax compliance. But change hasn’t been exclusively positive, and the Frenchman identifies a long and worrying decline in innovation over the last decade. Banks have been so wary of complex products and new ideas since the crisis that they have failed to embrace digitalisation.

Interest rates will go up and volatility will become commonplace, he says. And with new entrants disrupting the value chain, the traditional banking model will have to be reshaped. A culture change is desperately needed to tackle these challenges, he suggests, but says there are encouraging signs it is already in motion.

‘When I don’t understand I don’t buy. It’s simple but it has merit’, he shrugs.

Although possibly more optimistic than Andrews, he shares his concerns on cryptocurrencies: ‘When I don’t understand I don’t buy. It’s simple but it has merit’, he shrugs. Societe Generale has confidence in the future; that much is clear from the massive sums of money being thrown into digitalisation. Whilst believing we are finally leaving the crisis behind though, he is certainly not being complacent.

Although none of these three speakers set out to explain the Financial crisis, the repeated references emphasise its importance in any thorough analysis of the current state of our world. There is no doubt we have learned lessons from 2008. But there will be plenty more lessons to learn in the future, and we can take nothing for granted.