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A Today How did we get here? Who should take some responsibility? - - PowerPoint PPT Presentation
A Today How did we get here? Who should take some responsibility? - - PowerPoint PPT Presentation
Observations & lessons from the 2008 meltdown Who, why, what was responsible? What will happen next? Michael Chamberlain www.aventine.co.nz February 2009 A Today How did we get here? Who should take some responsibility? Where
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The innocence of a child
“What we learn from history is that people don’t learn from history.” Warren Buffett
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How did we get here?
Money supply expanded – big time It manifested in a housing bubble The system encouraged the extension of
credit to the poor
Bankers and investment bankers were
particularly sharp in off-loading the bad credit
The bubble burst Demand collapsed We live in a global world
At the end
- f the day
greed won
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US money supply
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Who will put their hand up highest?
Central banks Politicians Regulators The professionals
− Rating agencies − Investment managers − Advisors − Accountants
The labourers
− Bankers − Merchant bankers − Developers, real estate agents, mortgage brokers
Investors
Let the innocent cast the first stone
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Where to?
The four problems:
− Dysfunctional banking system − Decimated demand − A mountain of bad debt − Shattered confidence
One solution
− Make the banks value their liabilities at true value − Have the taxpayers recapitalise the banks − Ultimately privatise the banks − Increase the demand short-term through fiscal policy − Address the imbalances in the world
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The simple model
Economic activity
- Cost of inputs (raw materials, services etc)
- Rent
- Interest costs
- Wages
- Tax
= Residual profits
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Thoughts
Unlikely things happen
− We need to understand and price risk − You can rearrange volatility but not remove it
Assets vs liabilities
− Cost vs funding
Principles not rules
− Sunshine should be the foundation of the regulatory system
Gaol is a good sanction
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The innocence of a child
Why do people say it is fair because it is common
market practice?
− When did someone decide that an ordinary CEO was worth $1m+ as a base salary? − Why does a New York investment banker earn $25m in bonuses? − Why do managers get paid more than the value they add? − Why are directors not accountable to the shareholders?
Why can’t I understand an investment statement?
− Investment statements of no help, except to relieve the promoter of any liability or risk
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What will be the OCR on 24 March 2009?
- A. 3.5% (no change)
- B. Above 3.5%
- C. 3.0%
- D. 2.5%
- E. Something else
F.
Is it important now?
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