Transcript Howard Davies public lecture

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?
%
Bank executives
28
Governments
24
Financial regulators
10
The media
2
Central Banks
3
Thatcher and Reagan 1980s deregulatory
reforms
11
Consumers for borrowing too much
9
Everyone (democratic society for its collective
failure to policy the above)
Other
12
1
Source: Thisismoney.co.uk, June 2009
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)
Global current account balances
Household debt as a proportion of
GDP
Source: FSA, ONS, Federal Reserve, Eurodata, Datastream
Bank Balance Sheets
Large-cap banks’ aggregate assets rose to 43x
tangible book equity
Source: Silverlake, Capital IQ
Global Issuance of Structured
Products
Source: Silverlake, Lehman Brothers, April 2008
Latest GDP forecasts
6
4
2
0
2007
-2
2008
2009
2010
2011
2012
2013
2014
France
Germany
Japan
UK
US
-4
-6
-8
Source: IMF World Economic Outlook Database, April 2009
Federal funds rate, actual and
counterfactual, (in percent)
Source: The Economist, October 18 2007
Resecuritisation
Capital Structure Containing
Subprime Loans
Subprime Mezzanine CDO
Containing BBB Subprime Bonds
100%
100%
11%
SUPER
SENIOR
CUMULATIVE
LOSSES
AAA
AAA
8.6%
40%
AAA
28%
20%
11%
7%
0%
AA
AA
A
BBB
Residual/
Equity
A
11%
7%
BBB
7%
Equity
0%
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
Financial Stability
Forum
IAASB
(Audit)
Bank for International
Settlements
(Central Banks)
G-10
(Central Banks)
CGFS
Basel
(Banking)
CPSS
IOSCO
(Securities)
Joint Forum
IAIS
(Insurance)
PIOB
IASC
Monitoring
Group
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
Average of % happy and % satisfied
Happiness: comparing countries
Income per head ($ per year)
30
0
5000
10000
15000
20000
25000
30000
35000
The Financial Crisis:
whodunnit?
Howard Davies
Director, LSE
Reserve Bank of New Zealand
Wellington
31 July 2009