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The Financial Crisis: whodunnit?

The Financial Crisis: whodunnit?. Howard Davies Director, LSE. Reserve Bank of New Zealand Wellington 31 July 2009. Who is most to blame for the current financial crisis?. %. Source: Thisismoney.co.uk, June 2009. Some usual and unusual suspects.

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The Financial Crisis: whodunnit?

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  1. The Financial Crisis: whodunnit? Howard Davies Director, LSE Reserve Bank of New Zealand Wellington 31 July 2009

  2. Who is most to blame for the current financial crisis? % Source: Thisismoney.co.uk, June 2009

  3. Some usual and unusual suspects • economists - “if anything needs fixing, it’s the sociology of the profession” – Dani Rodrik (Harvard) • business schools – the Guardian • testosterone – Scientific American “above-average testosterone levels may lead to irrational risk-taking”. • video games – Professor Susan Greenfield of Oxford • human greed – Rowan Williams • Jews – 25% of Americans blame then (Boston Review survey)

  4. Global current account balances

  5. Household debt as a proportion of GDP Source: FSA, ONS, Federal Reserve, Eurodata, Datastream

  6. Bank Balance Sheets Large-cap banks’ aggregate assets rose to 43x tangible book equity Source: Silverlake, Capital IQ

  7. Global Issuance of Structured Products Source: Silverlake, Lehman Brothers, April 2008

  8. Latest GDP forecasts Source: IMF World Economic Outlook Database, April 2009

  9. Federal funds rate, actual and counterfactual, (in percent) Source: The Economist, October 18 2007

  10. Resecuritisation Capital Structure Containing Subprime Loans Subprime Mezzanine CDO Containing BBB Subprime Bonds 100% 100% 11% SUPER SENIOR AAA CUMULATIVE LOSSES 8.6% 40% AAA AA A BBB Equity 28% 20% 11% 11% 7% 7% 7% 0% 0%

  11. Global Committee Structure – A Regulator’s View G-7 (Gov’ts) IMF World Bank (Gov’ts) OECD (Gov’ts) WTO FATF (Money Laundering) IASB (Accounting IASC Financial Stability Forum IAASB (Audit) PIOB Monitoring Group Bank for International Settlements (Central Banks) G-10 (Central Banks) Basel (Banking) IOSCO (Securities) IAIS (Insurance) IFIAR (Audit) Source: Adapted with permission from Sloan and Fitzpatrick in Chapter 13, The Structure of International Market Regulation, in Financial Markets and Exchanges Law, Oxford University Press, March 2007 CGFS CPSS Joint Forum

  12. Average of % happy and % satisfied Income per head ($ per year) 0 5000 10000 15000 20000 25000 30000 35000 Happiness: comparing countries 30

  13. The Financial Crisis: whodunnit? Howard Davies Director, LSE Reserve Bank of New Zealand Wellington 31 July 2009

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