Batten down the hatches. We are headed for another financial crisis, this one in 2015, according to one analyst.
In a paper presented at Davos, Barrie Wilkinson, a London-based partner at the consulting firm Oliver Wyman, says we will have another crisis in four years time. The problem, he says, is that all the regulation following the 2008 meltdown came to nothing. New laws had stopped the banks from generating fee income by re-packaging credit books. They had also been banned from the money spinning practice of proprietary trading or selling complex derivatives to customers. To get around the new laws, the banks moved into the shadow banking sector and emerging markets jurisdictions which were still viewed as "banker friendly".
This fueled a commodities bubble which blew apart when commodities crashed. This time, governments were in no position to bail out the banks. It resulted in a massive and crippling sovereign debt crisis.
The entire story is told by John Banks who works for the fictitious Garland Brothers, a formerly British bank that had relocated its headquarters to Singapore in late 2011 as a result of what Garland's CEO had described as "irreconcilable differences" between the bank and the UK regulators.
Wilkinson writes: "As John ran through these facts it became clear to him that not enough had been learned from the sub-prime crisis. Bankers had gone chasing the next rainbow only to find another pot of toxic waste rather than a pot of gold. The new wave of regulations had proved ineffective at stopping another bubble from forming. John was struggling to understand what he should have done differently. Heads would
certainly roll. But who was really to blame this time around?
It's an alarming paper to read, mostly because as Tony Jackson in the Financial Times says, it all sounds plausible. "In the end, there are only two ways of restoring sanity to a mad system. The first is that banks and their shareholders come to accept that the banking supercycle really is over; that the old returns are no longer achievable, and cranking up the risk is ultimately futile,'' Jackson says. "The second way, of course, is another and bigger crash. Fingers crossed, everyone
very informative. keep it up.