Small Lessons From A Big Crisis – Bank of England Official Says “Banking System Like South Sea Bubble”

I enjoyed reading this speech,  the speech was given to an audience in Chicago (where I have been residing for several weeks).  The speech outlines small lessons that can be drawn from the recent financial crisis.

**Be sure to read the section on bank stress tests aka lesson 2.

Click Here To Read About Small Lessons From The Recent Financial Crisis (as PDF)

Introduction (Via The Guardian)

A senior Bank of England official today compared the banking system over the last 20 years to the South Sea bubble of the early 18th century and said bankers had merely “resorted to the roulette wheel” to keep up with each other. The Bank’s executive director for financial stability, Andy Haldane, said in a speech in Chicago that having been stable over much of the 20th century, returns in the banking system relative to the wider stockmarket shot up after 1986 until 2006. “Banking became the goose laying the golden eggs. There is no period in recent UK financial history which bears comparison,” he said.

Speech Introduction (Via Bank of England)

But there are already some smaller lessons to be drawn from crisis events. That is the purpose of these comments. Seven issues arising from the crisis are discussed and their implications for policymakers and practitioners assessed. If there is a unifying theme, it is informational failure. This has been a crisis borne of, and prolonged by, lack of information. That fog of uncertainty remains dense 18 months on. Because financial markets are, first and foremost, a market in information, these informational failures have generated prolonged paralysis in financial markets. Tackling them is priority number one.

7 Small Lessons From The Current Crisis

1. Finance Is No Golden Goose

2. Unless The Golden Goose Is Geared

3. Size Does Matter

4. Banks Cannot Pass a “Stress” Test * (Read this section)

5.  The plumbing worked

6. But some plumbing was missing

7. Banks’ profits were the problem – but are now the solution

Click Here To Read About Small Lessons From The Recent Financial Crisis (as PDF)