The Global Financial Crisis according to Johan Lybeck

Global Financial Crisis Survey

Johan Lybeck is the author of A Global History of the Financial Crash of 2007-10. Lyback currently resides in France, earned PhDs in Sweden and the United States, and has authored 20 books in multiple languages. His background includes extensive professional experience and multiple academic appointments (Professor of Economics at Univ. of Gothenburg and Univ. of Stockholm). He has served as an independent consultant for 25 years, and held positions at SwedBank Treasury division, SwedeSettle (President and CEO), and was Chief Economist of Matteus Bank. Forget Basel III and head straight for Basel IV (2/12/2012) is one of his recently published letters in the Financial Times.

1. Which FCIC View best represents the causes of the Financial Crisis?

None of the three views.

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

“Everyone” was at fault: Wall Street, the government, and our wider society

3. The Global Financial Crisis effectively ended in the year

2010. The reason for my response is that I think the present budget and debt crisis is mostly separate from the financial crisis and actually started much earlier, in the 1970’s, as a response to the hike in oil prices. Only in some countries did the financial crisis trigger a budgetary crisis because the financial sector was too big for the economy. Iceland and Ireland are obvious examples, perhaps Britain should also be included.

4. What were the primary causes of the Global Financial Crisis?

The bubble in housing markets in some Anglo-Saxon countries (US, UK, Australia) as well as well as Spain and Denmark, in combination with greedy bankers and investment bankers, overworked and incompetent supervisors, faulty econometric models of measuring risk in complex instruments in banks as well as rating institutes, naïve and greedy investors such as the German Landesbanken and many others (what business and competence had the Agricultural Bank of China selling CDS protection on the Icelandic Kaupthing Bank?).

5. What still should change as a result of the crisis?

The perception that some banks worldwide are Too Big To Fail must be addressed much more forcibly than has been the case so far, either by much higher capital requirements than proposed under Basel III (20-25 per cent True Core Equity and CoCo bonds) or bank size must be limited both absolutely and in relation to the home country, or both.

Compiled by Gary Karz, CFA
Host of InvestorHome

Global Financial Crisis Survey

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