What Caused The Global Financial Crisis according to Michael Lim Mah-Hui

The Global Financial Crisis according to Michael Lim Mah-Hui

Dr. Michael Lim Mah-Hui is a senior fellow at the Socio-economic and Environmental Research Institute (SERI) in Penang, Malaysia. He worked in major international banks (included Chemical Bank, Credit Suisse First Boston, Deutsche Bank, Standard Chartered Bank and the Asian Development Bank) in New York, Tokyo, Hong Kong, Singapore, Jakarta and Manila. Prior to his banking career, he was a post-doctoral fellow at Duke University and taught at Temple University and University of Malaya. He is the coauthor of Nowhere to Hide: The Great Financial Crisis and Challenges for Asia. He has also co-authored papers titled The Impact of the Global Financial Crisis: The Case of Malaysia and Financial Liberalization and the Impact of the Financial Crisis on Singapore. Additional research available online includes Old Wine in New Bottles: Subprime Mortgage Crisis - Causes and Consequences and From Servant to Master: The Financial Sector and the Financial Crisis.
1. Which FCIC View best represents the causes of the Financial Crisis?

Majority Conclusions

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 (in that order of significance).

3. The Global Financial Crisis is ongoing and will end in the year
2013 or beyond.

4. What were the primary causes of the Global Financial Crisis?
Primary causes of crisis must be understood at three levels : (i) faulty theory and methodology of rational expectation and market efficiency schools; (ii) financial deregulation and financial malpractices; (iii) three macro-economic structural imbalances and their interaction - current account imbalance; imbalance between financial sector and real economy; wealth and income imbalance.

5. What still should change as a result of the crisis?
Need to regulate and down size the over-blown and over-rewarded financial sector and players and bring it back to serve, rather than to destabilize, the real economy. Need to address the growing inequality issue, in particular, the phenonema of wages falling behind labor productivity growth and the growing share of GDP accruing to capital and declining share to labor that lead to recycling of surplus savings of rich into risky/high yield financial assets (resulting in financial asset bubble) and into household loans (debt bubble) for majority whose income has stagnated.

Compiled by Gary Karz, CFA
Host of InvestorHome

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