A decade on from the GFC, the world is less equipped to cope with the next crisis

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via stuff.co.nz:

OPINION: London in 2007 and 2008 was a wonderful time and place to be a Kiwi journalist. Everyone knows the term “global financial crisis”, but what defined the crisis was the incredible boom which came before it.

As informative as it is, anyone who has read The Big Short or watched the movie adaptation is left with the impression that it must have been terribly obvious that trouble was coming.

For a lucky few that is no doubt true, and if so they would have made handsome rewards for being ahead of the game.

For the most part though, the years leading up to the crisis were a huge party across the global financial system, which served to mask the problem.

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Banks on both sides of the Atlantic reported larger and larger profits, on the back of writing loans that were more and more aggressive, not that the growing risk was clear at the time.

The City of London – second only to New York as the capital of capitalism – was overrun with lavish behaviour and hospitality.

Ironically, looking back on it, the behaviour seemed to maintain the idea that the financial institutions were completely sound, because so much money was available.

As problems began to emerge in the United States, British bankers dismissed the sub-prime crisis as an American one, of dodgy lenders preying on people desperate to buy homes.

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In fact, the system itself was largely rotten and had lost control of risk management on the quest for growth.

The penny did not drop suddenly. Weeks before the first major collapse in the United States in early 2008, the British banks continued to pay dividends, as if to attempt to maintain the facade that the issues facing the financial system were isolated elsewhere.

Over the next eight months, the situation would become so dire that for a brief time were very real concerns that the banking system was in such a state that the cash machines would stop working, forcing a massive bailout from the British Government.



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