Financial crisis are painfully commonplace

Financial crisis are painfully commonplace

January 25, 2016 0 By Michel Santi


Blinder is no one than he who refuses to see. The main factors responsible for the torments of these last few years are still at large, when they haven’t been magnified despite declarations coming from the financial community and authorities claiming to be reassuring. According to them, systemic reforms would have in fact been made because financial institutions – which are far better regulated – would work on providing more capital. However, these commercial and financial imbalances have since 2008 been brought to a high point. In fact – held down by stricter supervision – the world of investment speculation has turned to raw materials, emerging markets and hedge funds with nearly non-existent regulation in order to realise complementary profits…but just to inflate a new bubble that is currently on full scale implosion.

Busy restoring order to bank ratios, the regulator has therefore – once again – been caught unawares by financial actors who, motivated by the will to earn more and ever more, continuously get a head start. In other words, the system is currently threatened with liquefaction by hyper-speculation on barely regulated asset classes, which is led by an industry which refuses to accept profits lesser than those of the past. How does one make them understand that profits from 2000 to 2007 constituted an unhealthy anomaly and that it is imperative – in order to save our economy – to grant particular attention to risk management and a massive abatement of leveraged transactions?

The last decade has been punctuated by speculative implosions and collapses of financial institutions and large investment funds. And this is why Nassim Taleb – author of The Black Swan – will have to review his theory since his “black swan” has become our daily bread! Due to our limited knowledge, we are confined to analyse the present and predict the future by observing and extrapolating past trends. The result is that any unforeseen events profoundly destabilise us. As soon as this unknown arises – Taleb’s famous “black swan” – it is the whole system, with its beliefs and presuppositions, which is threatened with collapse… In other words, unpredictable events, that is to say any event affected by weak probability, are having a considerable impact. The extreme and unhealthy market volatility of the last few years was provoked precisely by “highly improbable” events, as it so happens by readjustments and liquidations of positions held by investors who knowingly took too many risks.

In fact, financial investors and professionals have become de facto public enemies since the cultures of excessive risk and win at all cost have become the norm. Gone are the days when dad would buy shares to keep them for a few years, gone are the days when grandad would place his savings in Treasury Bonds. Taleb has already been overtaken because uncertainty, erratic behaviour and exacerbated volatility now furnish our lives, in the knowledge that even the most sure, reputed investments are now vulnerable to go bankrupt from one day to the next. Exceptional occurrences are now an integral part of investor psychology. Worse still is that these investors speculate and gamble on the advent of the “highly improbable” in the hope – obviously – of making a profit from it. In short, the “black swan” reigns supreme.

At the start of 2016 the economic climate is much more uncertain than before the subprime crisis, and our system therefore finds itself struck with immunodeficiency in the face of the risk of another implosion. Governments – who have spent unholy sums on financial bailouts – will no longer be in a position, neither economically nor politically, to draw on now empty accounts in order to stabilise and clean up the system. Bankers have of course accomplished an admirable feat of lobbying by persuading our governments of their establishments’ vital role to our economy. Meanwhile, the taxpayer’s pockets are empty and so are Governments’. The consequences of the implosion of a new bubble would therefore be easy to understand but terrifying to bear.

While whole swathes of financial activity are now escaping all regulation and sovereign debt crises are far from being resolved, the ingredients of a major conflagration are currently coming to a fore. Inexorably.