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Will anything change as a result of the financial crisis?
00:01:00 | 08 May 2009 from Citywire
We have lived through the biggest financial crisis since the 30s, leading to arguably the most severe economic slowdown since the Second World War. But will anything really change as a result of all the chaos and the trillions pumped into the financial system? Our writers argue it out.
No chance, says Deborah Hyde, we're already returning to normal.
We’re on a runaway train and no-one really wants it to stop.
This crisis has proven what many people believed already - boom is inevitably followed by bust.
Look around you. How many people (mates, columnists, finance professionals and government ministers) are still talking up the economy despite the fact that the bills for our latest are still coming in.
The government has spent unimaginable sums to make sure nothing really has to change. They are encouraging the banks to give us more money to allow us to spend more.
If there were any lessons to be learned from the latest crash they have been lost among the voices of all those clamouring to get the economy back on track.
For many, today’s woes are just another buying opportunity, another reason for a spending spree.
And few in authority seem to be arguing with them. They’re too busy hoping that they’ll be able to make a buck too.
Whether it is technology stocks (that have no product and no customers), boiler room scams or elaborate financial products that are so complex no-one knows how they work, history shows us people will buy whatever everyone else is buying if the marketing material is good enough.
And why not?
The only lesson anyone seems to have learned - whether we’re million pound a year bankers or paper millionaires who’ve made a killing on the property or equity market - is that you should cut your losses a little bit earlier next time.
This crash came about because we all turned a blind eye, wanting to believe things really could only get better.
Although 125% mortgages made us nervous we remortgaged our own homes.
The rise of house prices made us fearful but we bought anyway – after all new rules meant we could afford the mortgage repayments.
Despite what we learned in the late 1990s we invested money through ISAs or directly in shares – often not knowing who was managing our money or what they were doing with it.
As a nation we spent what cash we had and if we didn’t have enough for what we wanted we borrowed it.
The latest retail sales data suggests that – unlike our European peers – we’re more than happy to carry on. After all, the government says we should.
Even our attempts to go green just means we’ve added things to our shopping list.
Of course, there will be new regulations and new assurances that the environment has been made safer and risks have been reduced.
But people will find new ways to make money and ways around the rules and we’ll be off again – still not asking enough questions.
Over time we will all change our habits and expectations, we have to, says Tony Bonsignore.
It’s difficult to predict the full impact of the financial crisis when the thing hasn’t fully played out yet.
At the moment, for example, a wave of optimism seems to be enveloping the country, as people dare to believe that the world isn’t coming to an end after all.
Heck, it’s almost starting to feel like a return to normality, with some banks even declaring bumper profits and dishing out the fat bonuses once more. People are even spending a bit of cash.
So is that then, was that the great crisis? Are we about to witness a return to normality? And will we eventually come to see this as another recession, albeit a slightly more dramatic one?
Not so fast. The threat of systemic banking collapse has certainly faded, for now at least. However, I would suggest there are good reasons to believe that the world has – or least will very soon – change fundamentally, and for the better too.
Even if meltdown is avoided, the cost of the crisis means we can still reasonably expect many years of stagnant growth, something western economies and their citizens just aren’t geared up to deal with.
This has to have a major effect on all our lives.
As tax bills rise, public spending is cut, and unemployment remains stubbornly high, people will surely start to alter their expectations, of their governments, their financiers, and themselves. And they will get angry, and demand change.
Here’s what might happen:
The taxpayer-owned banks will be formally nationalised and broken up, as it becomes clear they have no future as private companies.
The greedy bonus culture will become intolerable, and the City will duly shrink. And we’ll all be happy with that, as we stop finally believing that our fortunes are dependent on theirs.
Excessive pay in general will be frowned upon, and director’s pay will come down to an agreed, acceptable multiple of average salaries.
Mortgage lending will be capped, house prices included in the BoE’s inflation-setting, and there will be a massive tax clampdown on B2L.
Consumerism will retreat too, slowly but surely. It will become more acceptable to save, ‘brands’ will fall out of favour, and debt will become more socially unacceptable.
The fund management industry will get its biggest shake up ever, and annual bonuses outlawed in the same way as for bankers.
A massive increase in social housing will be a manifesto pledge for all major political parties.
The FSA will be overhauled and broken up, and financial regulation tightened.
Pensions will receive their single biggest shake up since WW2, with public sector final salary schemes axed and the state pension increases.
Fanciful? I don’t see why. This has been a financial crisis of historic proportions, people have been hit hard for things they had little control over, and there is a growing groundswell of popular support for change. When this is allied to long term economic hardship, the result could be dramatic.
There has to be change - i mean, we didn’t really spend all those trillions for nothing, did we?