good afternoon and thank you for joining
after class
I’m really impressed that any of you
might have decided that financial
regulation was really the reason why you
were here
so thank you very much and what I would
like to say is that having gone through
all the demise of the 2007 financial
crisis the so-called Lehman crisis or
the subprime loan crisis that I will
talk about I have continued to be
haunted by the idea that regulators are
in fact curing the problems of the
previous and I’ve been following all
that transformation and I’m asking
myself what’s next where will the next
one come from under the which fall so
what I’m going to try to do is because
this is a pretty dry subject let’s face
it I am going to try to walk you through
a story and I’m going to use cartoons so
you might have heard about this country
Greece has become for Europe the epitome
of the financial crisis it was a small
problem it was a small crisis but it
mobilized everybody and the governments
didn’t know what to do with it so Greece
had to be built out by the private
sector and by the banks and today Greece
is not even resolved we are still
talking about the problem of Masoud
tsipras we are still talking about what
can Greece do to pay its next debt what
will they do to get another run of
austerity however while the European
Commission is spending time there trying
to support Greece there is a much bigger
danger that danger is call Italy we are
currently in a banking crisis in
but more importantly the problem of
Italy is five times the size of the
problem of Greece we can’t afford the
collapse of Italy but like the PISA
tower Italy is going down almost
inexorably interest rates have doubled
so how ten years after the Lehman crisis
I will still confront it with problems
of financial regulation and financial
stability it all started because in the
golden years of the 90s where we all
over spent and made too much money that
everybody said the banks have become
wise and therefore we don’t need
regulation and one by one regulation
went done the gentleman on top of this
is actually Ben Bernanke the chairman of
the Federal Reserve and he said in a
famous sentence markets know better than
regulators how to organize the granting
of loans except that that was based on
an optimistic view of what actually
banks would do what they did is this
they lied to their customers by telling
them we have a fantastic solution for
you
you are going to get a loan that will
allow you to buy a bigger house or to
buy your first house it’s going to cost
you 2% I was receiving in my mail
incredible ideas about you are going to
burrow in LIBOR
how many US citizens know what the
London interbank offered rate could be
well they built it they bought it and
two years later the rates were adjusted
and they couldn’t pay and in the US you
cannot renegotiate a loan why because
the banks didn’t keep them Citibank JP
Bank of America were granting new loans
at 2% that ended up being loans at 7%
but the loans had already been packaged
into some hedge fund kind of products at
the same time we were in a situation
where they didn’t service the loans
because they had sent a service contract
to people who were doing that we even
went to a situation where the tsunami of
those prime loans destroyed the real
estate market but more importantly
destroyed the people and I keep thinking
of the story of that single mother with
three children who one day left the keys
of a home and for six months lived in a
car that is what has been created there
that is where the foreclosure which
means you give the key you don’t have
any liabilities anymore
but you’re lost you are forever
considered to be a bad borrower so
having gone through that the President
of the United States Barack Obama the
website having gone through that we
arrived to a situation where the banks
didn’t know how much each of them had
and they stopped lending to each other
which they do for trillions and they
deposited that money in central banks
but all of a sudden we were in a
liquidity crisis what does that mean
that means that nobody knew exactly the
amplitude of the crisis and it was the
panic and it was the panic of a
particular weekend that I remember very
well that single weekend on Friday
aliens wanted to buy AIG who became
bankrupt three days later because they
refused marriage was sold to Bank of
America and when Lehman was supposed to
be bought by Barclays Bank the
Chancellor of the Exchequer you might
not know that it is actually the British
nice or financed cold its US counterpart
and see we are not going to bail America
out of its bedrooms three of the largest
institutions collapse in one weekend and
President Obama who by the way was
partly elected thanks to the we handle
debt crisis told Congress that under no
circumstance would taxpayer having to
foot the bill and that now he wanted a
regulation whereby the banks could
actually resolve their own problem so
needless to say what President Obama
wanted to do was not totally at the
taste of Wall Street and I remember
Larry Summers that you might have heard
about he was a secretary of the Treasury
making a presentation saying now as
regulators we will never assume that the
bankers get it because they don’t we
have been in crisis in 1966 every six
years because of them now we have to
frame them and that is how the financial
system recovered until this guy came in
you remember my great this is not a peep
okay he came in with absolutely no idea
what financial stability was with the
assumption that banks were not prepared
to lend money with the assumption that
everybody was being cheated and that we
had to let Wall Street so the market why
not beautifully he was there and
everybody said he has the recipe no more
regulation except that the result of the
situation was on the right side that
over the last ten years the middle class
had lost 40% of its wealth and one
percent of the US population
on 99% of the wealth doesn’t
particularly care about that but what we
are seeing happen is a situation where
Goldman Sachs who by the way is
everywhere there are at least five
goldman sachs senior executives in the
current administration Dolman Sachs said
this is going to reduce the wealth of
the bank’s by 250 billion they are not
going to reduce their balance sheet so
what is going to happen they will be
weaker so we are going a road that we
know is the road of the weakening of the
financial sector and therefore what I’m
trying to see here is that it is
absolutely crucial that some resistance
be met so that we keep the stability of
the US banking especially because this
is not about just the u.s. in Bothell
some of you might have been in this
lovely Swiss city they meet a record to
try to stabilize the world but at the
g20 the United States refused to sign a
commitment to free trade so the world no
longer knows whether it can count on the
United States to continue maintaining
financial stability and that is the
biggest risk that we are seeing because
those guys have been extraordinary
rescuing the banking system over the
last ten years by intervening those are
the central bankers you have Janet
Yellen from the Federal Reserve you have
Mario Draghi
from the European Central Bank and you
have mr. Kuroda from the Bank of Japan
together they have accumulated ten
trillion dollars of additional assets
which means they are ten trillion dollar
less able to rescue the next crisis
so we have the banks who are going to be
deregulated the central banks who are
less able to intervene but this is the
most important message to you we have
basically tried to resolve all our
political and social problems by
accumulating debt we are at a level
where most of the countries have a debt
that represent a hundred percent of what
they earn in one year but more
importantly and maybe that’s because I
just got a new grandchild I would like
to point you to the father and the two
children saying someday this will be
yours because it is yours you are
entering a world where we our generation
has basically wasted money created
substantial climate problems and I have
to tell you something you have to be
fully awake so that we it doesn’t get
worse and that measures are being taken
because the politicians live on the
four-year or five-year basis they don’t
care about that
for those who follow Chester day the
presidential debate nobody talks about
that this is the biggest threat at the
moment and unless we have a serious
reform of our society we will get very
soon into either the Italian the Chinese
or another systemic crisis and that’s
what I want to avoid thank you very much
[Applause]
after class
I’m really impressed that any of you
might have decided that financial
regulation was really the reason why you
were here
so thank you very much and what I would
like to say is that having gone through
all the demise of the 2007 financial
crisis the so-called Lehman crisis or
the subprime loan crisis that I will
talk about I have continued to be
haunted by the idea that regulators are
in fact curing the problems of the
previous and I’ve been following all
that transformation and I’m asking
myself what’s next where will the next
one come from under the which fall so
what I’m going to try to do is because
this is a pretty dry subject let’s face
it I am going to try to walk you through
a story and I’m going to use cartoons so
you might have heard about this country
Greece has become for Europe the epitome
of the financial crisis it was a small
problem it was a small crisis but it
mobilized everybody and the governments
didn’t know what to do with it so Greece
had to be built out by the private
sector and by the banks and today Greece
is not even resolved we are still
talking about the problem of Masoud
tsipras we are still talking about what
can Greece do to pay its next debt what
will they do to get another run of
austerity however while the European
Commission is spending time there trying
to support Greece there is a much bigger
danger that danger is call Italy we are
currently in a banking crisis in
but more importantly the problem of
Italy is five times the size of the
problem of Greece we can’t afford the
collapse of Italy but like the PISA
tower Italy is going down almost
inexorably interest rates have doubled
so how ten years after the Lehman crisis
I will still confront it with problems
of financial regulation and financial
stability it all started because in the
golden years of the 90s where we all
over spent and made too much money that
everybody said the banks have become
wise and therefore we don’t need
regulation and one by one regulation
went done the gentleman on top of this
is actually Ben Bernanke the chairman of
the Federal Reserve and he said in a
famous sentence markets know better than
regulators how to organize the granting
of loans except that that was based on
an optimistic view of what actually
banks would do what they did is this
they lied to their customers by telling
them we have a fantastic solution for
you
you are going to get a loan that will
allow you to buy a bigger house or to
buy your first house it’s going to cost
you 2% I was receiving in my mail
incredible ideas about you are going to
burrow in LIBOR
how many US citizens know what the
London interbank offered rate could be
well they built it they bought it and
two years later the rates were adjusted
and they couldn’t pay and in the US you
cannot renegotiate a loan why because
the banks didn’t keep them Citibank JP
Bank of America were granting new loans
at 2% that ended up being loans at 7%
but the loans had already been packaged
into some hedge fund kind of products at
the same time we were in a situation
where they didn’t service the loans
because they had sent a service contract
to people who were doing that we even
went to a situation where the tsunami of
those prime loans destroyed the real
estate market but more importantly
destroyed the people and I keep thinking
of the story of that single mother with
three children who one day left the keys
of a home and for six months lived in a
car that is what has been created there
that is where the foreclosure which
means you give the key you don’t have
any liabilities anymore
but you’re lost you are forever
considered to be a bad borrower so
having gone through that the President
of the United States Barack Obama the
website having gone through that we
arrived to a situation where the banks
didn’t know how much each of them had
and they stopped lending to each other
which they do for trillions and they
deposited that money in central banks
but all of a sudden we were in a
liquidity crisis what does that mean
that means that nobody knew exactly the
amplitude of the crisis and it was the
panic and it was the panic of a
particular weekend that I remember very
well that single weekend on Friday
aliens wanted to buy AIG who became
bankrupt three days later because they
refused marriage was sold to Bank of
America and when Lehman was supposed to
be bought by Barclays Bank the
Chancellor of the Exchequer you might
not know that it is actually the British
nice or financed cold its US counterpart
and see we are not going to bail America
out of its bedrooms three of the largest
institutions collapse in one weekend and
President Obama who by the way was
partly elected thanks to the we handle
debt crisis told Congress that under no
circumstance would taxpayer having to
foot the bill and that now he wanted a
regulation whereby the banks could
actually resolve their own problem so
needless to say what President Obama
wanted to do was not totally at the
taste of Wall Street and I remember
Larry Summers that you might have heard
about he was a secretary of the Treasury
making a presentation saying now as
regulators we will never assume that the
bankers get it because they don’t we
have been in crisis in 1966 every six
years because of them now we have to
frame them and that is how the financial
system recovered until this guy came in
you remember my great this is not a peep
okay he came in with absolutely no idea
what financial stability was with the
assumption that banks were not prepared
to lend money with the assumption that
everybody was being cheated and that we
had to let Wall Street so the market why
not beautifully he was there and
everybody said he has the recipe no more
regulation except that the result of the
situation was on the right side that
over the last ten years the middle class
had lost 40% of its wealth and one
percent of the US population
on 99% of the wealth doesn’t
particularly care about that but what we
are seeing happen is a situation where
Goldman Sachs who by the way is
everywhere there are at least five
goldman sachs senior executives in the
current administration Dolman Sachs said
this is going to reduce the wealth of
the bank’s by 250 billion they are not
going to reduce their balance sheet so
what is going to happen they will be
weaker so we are going a road that we
know is the road of the weakening of the
financial sector and therefore what I’m
trying to see here is that it is
absolutely crucial that some resistance
be met so that we keep the stability of
the US banking especially because this
is not about just the u.s. in Bothell
some of you might have been in this
lovely Swiss city they meet a record to
try to stabilize the world but at the
g20 the United States refused to sign a
commitment to free trade so the world no
longer knows whether it can count on the
United States to continue maintaining
financial stability and that is the
biggest risk that we are seeing because
those guys have been extraordinary
rescuing the banking system over the
last ten years by intervening those are
the central bankers you have Janet
Yellen from the Federal Reserve you have
Mario Draghi
from the European Central Bank and you
have mr. Kuroda from the Bank of Japan
together they have accumulated ten
trillion dollars of additional assets
which means they are ten trillion dollar
less able to rescue the next crisis
so we have the banks who are going to be
deregulated the central banks who are
less able to intervene but this is the
most important message to you we have
basically tried to resolve all our
political and social problems by
accumulating debt we are at a level
where most of the countries have a debt
that represent a hundred percent of what
they earn in one year but more
importantly and maybe that’s because I
just got a new grandchild I would like
to point you to the father and the two
children saying someday this will be
yours because it is yours you are
entering a world where we our generation
has basically wasted money created
substantial climate problems and I have
to tell you something you have to be
fully awake so that we it doesn’t get
worse and that measures are being taken
because the politicians live on the
four-year or five-year basis they don’t
care about that
for those who follow Chester day the
presidential debate nobody talks about
that this is the biggest threat at the
moment and unless we have a serious
reform of our society we will get very
soon into either the Italian the Chinese
or another systemic crisis and that’s
what I want to avoid thank you very much
[Applause]
Please follow and like us: