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Wednesday, February 12, 2014

Strategic CSR - Financial Crisis

Some quotes from a recent article in The New York Times by Gordon Brown, who was Prime Minster of the UK during the most recent Financial Crisis:
“Already, we have forgotten the basic lesson of the crash: Global problems need global solutions. And because we failed to learn from the last crisis, the world’s bankers are carrying us toward the next one.”
“… most of the problems that caused the 2008 crisis — excessive borrowing, shadow banking and reckless lending — have not gone away. Too-big-to-fail banks have not shrunk; they’ve grown bigger. Huge bonuses that encourage reckless risk-taking by bankers remain the norm. Meanwhile, shadow banking … has expanded in value to $71 trillion, from $59 trillion in 2008.”
“In the patterns of borrowing today, we can already detect parallels with the pre-crisis credit boom.”
“China’s total domestic credit has more than doubled to $23 trillion, from $9 trillion in 2008 — as big an increase as if it had added the entire United States commercial banking sector. … And China’s banking system may not be Asia’s most vulnerable.”
Ultimately, Brown’s criticism is not focused on different laws and regulations put in place by individual country legislatures, but with the failure to act on a global scale. Because big banks have become bigger (more multinational), the need for consistency across borders is paramount:
“The Volcker Rule, now approved by American regulators, illustrates the initial boldness and ultimate weakness of our post-2008 response. This element of the Dodd-Frank financial reform law of 2010 forbids deposit-taking banks in the United States from engaging in short-term, proprietary trading. But these practices are still allowed in Europe. Controls are even weaker in Latin America and Asia. International rules are needed for international banks.”
“In short, precisely what world leaders sought to avoid — a global financial free-for-all, enabled by ad hoc, unilateral actions — is what has happened. Political expediency, a failure to think and act globally, and a lack of courage to take on vested interests are pushing us inexorably toward the next crash.”
Take care
David Chandler & Bill Werther
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Heading Toward Another Crash
By Gordon Brown
December 20, 2013
The New York Times
Late Edition – Final