Wednesday, February 10, 2010

The Credit Crisis was an Epochal Event

Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

From July 2007 to March 2009, share prices for global banks fell by 75%. That erased US$5 trillion in shareholder equity. Considering all markets, McKinsey has estimated that the fall in global wealth was US$25 trillion. To put that in context, the lost wealth was nearly 45% of global GDP, or a half year’s wages for the entire working world. On that basis, says Bank of England’s Andrew Haldane, “asset price falls in the UK and US were as large as during the Great Depression.”

Bank of England: We are living through an extraordinary period for the economic and financial system. Events of recent years will be seen by financial historians as among the most significant in the past millennium. At the worst point of the crisis, savers and borrowers around the world came close to losing confidence in financial institutions. The resulting panic has had deep and long-lasting consequences for global activity. [1]

What are the lessons about the securities finance markets that financial regulators are deriving from the crisis experience? The best way to learn is to listen to what they are saying.

[1] Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, Liverpool, 27 January 2010.