That feature in bank processes led to the dominance of hedge funds & securitisation, and, allowed the emergence of what we now know as “ponzi” schemes – all perfect examples of “houses of cards” which, hindsight shows, were simply waiting for the wind to blow, and making hay until it did.
The Wall Street Journal has reported several key speakers focussing on Transparency and Simplicity as being the essential new cornerstones.
German Chancellor Angela Merkel said "We need clear-cut rules world-wide". This would at least go some way to preventing “macho tactics” by one major economy from gaining it a dominance capable of toppling smaller finance systems all around, the World, as happened with the “Sub-Prime Lending” debacle of 2008.
Back-to-basics strategies are now going to be the objective.
"In the end, what we want is a financial industry and banking-sector industry where you have more capital, less debt, more rules and much stronger supervision," said Italian central-bank governor Mario Draghi.
And, most fundamentally, he stressed that “the only thing that would attract investors...was the assurance of safety and transparency”.
Self-interest, greed and manipulation must be eradicated from the global banking system once and for all. And, that “For All” should become the motto of the way forward in finance.
Technological advances over the last 10 years, and the rise of the Internet and Social Networking, now mean that smaller systems, like micro-financing, can be adopted and linked together, much the way that smaller businesses are starting to find they can band together in joint ventures to work as efficiently as big corporates – this will be another growing trend for 2009 onwards, leaner, more flexible craft speeding past lumbering supertankers.
These new moves will lead to “real products that are simple to understand, easy to price and satisfy certain legal conditions" which Mr Draghi said would help to restart the market.
Among the new rules of the game for banks are likely to be simpler models that rely less on off-balance-sheet vehicles and borrowed funds to drive profits. Less complexity, not more. Regulators are also likely to force banks to be clearer and more transparent about the type of risk that exists on their balance sheets.
The WSJ article went on to point out that “within this new banking landscape, hedge-fund operators face their own changes. Eric Mindich, chief of hedge fund Eton Park Capital Management, said funds will be consolidating. He also said funds will be forced to better match assets and liabilities in order to ensure liquidity in times of stress.”
Another consensus was starting to emerge too - one that highlights that making heavy use of debt will no longer be possible to power growth. Martin Senn, chief investment officer at Zurich Financial Services explained "I think the industry will be required to hold more capital, which will lead to less leverage, which will eventually lead to more stable institutions,".
All serving to ensure that the New World will indeed be a better, far less masculine, place.
Howard J Moorey
January 31st, 2009