Doom and Gloom Outlook at RiskMinds 2008, Geneva
Patrick O'Brien 270004PR46 email@example.com | | 0 Comments | 201 Visits
Although there were differing opinions about the main causes of the current financial crisis, most speakers at RiskMinds in Geneva were unanimous in their belief that the worst is still to come in what many were referring to as the “Great Recession.”
Robert Shiller of Yale University drew many parallels between the Great Depression and today’s crisis. For example, we have lost 60% of the stock market value since the 2000 high, while during the great depression there was an 80% drop. But Shiller refuted many of the commonly believed causes of the current crisis such as weak underwriting standards, unsound risk management practices, increasingly opaque financial products, and aggressive leverage. He maintains that the speculative bubble in both the real estate and stock markets were largely to blame for the worst financial crisis since 1929.
Maureen Miskovic, CRO at State Street, opened her presentation with a quote from Dickens’ Tale of Two Cities: “It was the best of times, it was the worst of times, …” and went on to claim that we are in the midst of a financial revolution. Miskovic predicts that we will see unemployment levels of close to 10% in the U.S. next year which will in turn cause problems in the prime mortgage market. She also predicted that the current political climate will result in punitive regulation which will transform the large U.S. banks into institutions that are very similar to public utilities (increased disclosure, more transparency, and intrusive examination).
Zannie Beddoes, Global Economics Editor at the ECONOMIST, predicts that shrinking personal wealth will greatly effect demand and eventually push the world into depression era economics. She stated that the current situation is unlike other post war recessions due to the asset bubble burst and so we are in for a deep, long recession. She also fears an anti-market backlash which could result in subsidy wars and protectionism policies.
While the speakers painted a picture of doom and gloom, they were clear about the increasing role that risk managers need to play in helping financial institutions restore confidence and trust, as well as create a sense of opportunity in the financial markets.
I’ll summarize some of their recommendations in tomorrow’s blog.