On: Financial Crisis
2nd July 2008
Introduction: “Hugo Dixon is here tonight as our distinguished guest and we welcome him. He’s much more equipped to talk about these complicated studies tonight and which to give him a warm welcome please and listen to his very wise words.” Applause!
Hugo Dixon: “Thank you very much to you and thank you very much to Justin and all of you and them of your prophylactic groups to be here this evening and I might be off topic for you to hear this, as he was saying, because you’re normally talking about Afghanistan and Burma, …., however I that think we all realise that we live in an increasingly interconnected world and what it and what is happening in the world of finance, since economics, much more so than ever before me. And I going to point, in particular a connection for us all what real business is in my view, in the financial times in American power.
What were also about to see that we are in the midst of is to define in American economic strength as power moves from west to east. And these two things are happening pretty parallel and we’ll restate the world for the future. Another connection that I will point to is the current financial crisis that we are in the midst of which is a really toxic mixture of deleveraging that is coming from the bursting of the credit bubble at the same time that there is a frightening social expression that’s coming from soviet of China than from the moditty bubble…… say double what they were a year ago, but for rather a phenomenon causing the one stress but not just for ordinary people, but also for government. Government finds it easy to manage their colonies and their countries when things are going well, when things are going badly, they are stressed and what they normally do to resort to popular short- term measures in a effort to tricep, hang on desperately to power that then stalls up problems for the future.
These are just two of the connections that I would like to draw between politics and finance. But the topic of my speech for this evening or maybe I should say my second speech, you get two for the price of one, is the financial crisis and more particularly how Wall Street and the cities have run amok at how they need to be ranged. As a second thing to say about the financial crisis and thankfully we’ll be here until tomorrow evening until we cover them all, but this is a particular issue of mine and when one talks about the problem and of this context, who is to blame. I would say there are three prime culprits for the current financial crisis. And that’s what we substitute wine with the bottle created because when there’s a bottle there’s a third problem.
The culprit number one was Alan Greenspan, who used to run the bets in America, allowed a lot of cheat money; money from the victim of cheat money. Every time there was a rip of problem in the financial market, he would bail them out. So to speak, money pander, Hue Paul Mcorthin, thinking, they thought what… ..
The second sort of the problem was the cheap money from the east. China, in particular, did not want to see it come to this, giving up because it was determined to boost employment to absorb all the midst of people coming from the agricultural area into the city as a way they should do that was by exporting lots of cheap manufactured goods and a way that they can do that by keeping their currency low. By keeping their currency low, they can have all of this foreign currency which they don’t let back into us or the West, they got us booked even more on the…..
But the third problem was within the financial system that was in the western financial system here, in London and New York principles, where the whole range from skewed incentives, heads I win, tails you lose incentives, which meant the financial system encourages more and more and more reckless behaviour over set past of the last decade.
Nothing from aside from my aspect, what is a healthy financial system? And I hope you can ask this and if not, there are many systems that don’t have greed. I think that another favour where were stuck in the game, but I don’t think in this room are in favour of this sort of marketing plan. But, you have liberated the emotions of people, that there are two prime emotions in the financial market: greed and fear. And in a healthy financial system, the greed and the fear are properly balanced. They rupture according to peoples’ perceptions of what is really going to happen. Now what we’ve had for a long period of time is a very, literally, this kind of luxury if we had …travel(?) greed and hypnotized fear because what’s been going on is that every time people have had a bit of a crisis, the authorities have rushed in and failed people.
Not just the Central Bank, but look at the way people are paying these financial markets, they have what convicts call push symmetric incentives, that means that if they have a very good year and maybe there just lucky and then they consume tens of millions dollars or pounds for their firms, they’ll get a very very very fast bonus but if they loose it all and more, they won’t give the past bonuses back. So every year they collect, like playing monopoly, you pass go, you collect 200 pounds, you move on. But once you collect you don’t really have to pass go, you don’t really have to. But this is a ….factor.
So although, another factor that I call the murkiness and the lack of control in the systems. A whole range of new angles products were created, nobody had any spare idea what they were and nobody would control it and there were three levels of lack control, one, is fascinating.
Bankers and the British didn’t really know much about what they were doing, the youngsters didn’t know anything and the old guy didn’t understand the new products. Secondly, you had incompetent forced directors and they were providing any control. At first, you had the regulators who were just rushing you out to lunch, I mean, you can’t really blame them. I think, because whenever there was a smart regulator, a bank society or the Bank of England or the banks in New York or the (FCC?), as soon as they were spotted by Goldman Sacs or George Sacs, they would grab, hey we’ll pay you five times what you earning and sing in it.
All the talent was sucked out of the regular comparisons and into the financial districts results. So no wonder, I mean how were these poor and call it… that they were regulators. ….and keeps control of these much much much… running rings around her. The key problem is that…. And that’s why all financial systems are running amok and although I am normal, really I’m normal that they mock this critique of capitalism as really upped things, really began to ring through all the… and the concept, the process of privatize and the losses are centralized and this is a really serious problem that gives capitalism a bad name and what is really bad was last year, believe it or not, last year, fives times the percent that it would take in January, the financial crisis was already four or five months old. Benefits on all three politics are that the banks were higher last year than the previous year, they were higher and they still managed to go pass go one more time. So when you look at the future, what is the goal? What should be the goal in the financial district? Well I think you need to have a financial system which is less vulnerable shock because they will forget that at the moment the central bank are bailing the system out if the fed, the Bank of England, ECD (?) were not pumping money into the money market, there would be a whole financial problem and many many many more banks would have collapsed. The northern world and Canada, they were just two, but the Neemham brothers would have gone, there would have been many many other that would have gone, all the money, pickles. And so, the consequence for us, one of the consequences, is this rise in inflation repression. We have to bail out banking systems by pumping money. Some of that money has found its way……
Another problem is that we have to bail out some of these banks, like Northern… we have to take them into public initiative and ultimately tax payer is a Gordon Brown… of any losses. Well if he’s lucky, but he is not lucky and he probably wouldn’t be the prime minister when he discovers what the ultimate bill is.
If we look to the future, what we need to do is we need to do two things. One: more capital in banking systems. Much more capital, so that it can absorb this shock, when there are shocks. Secondly, that and the way…”