Evan Davis hosted a live debate from the Willis Building in the City of London to reflect on the past year of economic turmoil, and to discuss where the credit crunch mess will lead next.
The BBC Radio 4 programme The Credit Crunch Mess - What Next? featured contributions from some of the City's leading figures, who gave their predictions for the year ahead. These comments were recorded on Monday, 15 September.
DAVID SHAIRP: CHIEF GLOBAL STRATEGIST, JP MORGAN
David Shairp on who is to blame for the economic crisis
The world economy is approaching a very difficult turning point, particularly emanating from the US, but also in the UK and increasingly in Europe and parts of Asia as well.
I think we are going to see a fairly generalised global slowdown, and continued adjustment in parts of the financial services industry.
So if there is one lesson that investors should take away from this, it is probably not to be too brave at the current time, but to focus on fairly safe investments, focus on having a decent level of cash and liquidity in their own mix of personal assets.
AVINASH PERSAUD: CHAIRMAN, INTELLIGENCE CAPITAL
Avinash Persaud says the banks and regulators must accept responsibility
I think the crisis is evolving over time. The beginning of the crisis was a liquidity problem. People were so uncertain, no one wanted to lend to anyone. We had banks who had assets but they could not get anyone to buy them.
Now we are moving away from a liquidity problem - which can be solved by central bankers - to a credit problem. People have got assets which have fallen in value and they are not going to recover in value.
The credit crunch is actually going to be quite hurtful for the wider economy. Banks are going to find it very hard to lend, there is going to be de-leveraging - pulling back of risk appetite - and all that is going to hurt the economy because the economy depends on credit.
GEORGE MAGNUS: SENIOR ECONOMIC ADVISER, UBS
George Magnus on how long the economic crisis could last
In apportioning blame for the boom, and the subsequent bust, there is much to go round.
One bank can make a series of bad or excessive lending decisions, but when this becomes commonplace, it is not 'the banks' acting in some collective conspiracy, but a systemic problem.
Systemic problems like this are essentially about the political and economic regimes which govern the conduct and behaviour of banks, as well as companies and consumers.
Governments and central banks and their policies or oversights were the causes
Our economic and political leaders willed or facilitated a laissez-faire 'anything goes' kind of capitalism that was hailed to be the envy of the world. It certainly is not any longer.
It is important to understand the distinction between populist and underlying causes.
Banks were the agents of the boom and bust.
Governments and central banks and their policies or oversights were the causes.
Without realising this distinction, we will learn the wrong lessons, devise inappropriate solutions, and maybe end up with another financial mess all too soon after this one is cleared up.
BENJAMIN BARBER: AUTHOR OF 'CONSUMED'
Dr Benjamin R. Barber considers the impact on consumers
The current crisis in consumer capitalism - which has precipitated a mortgage crisis, a housing crisis, a spending crisis and a savings crisis in the United States and the West - has many causes.
But consumers themselves bear major responsibility for these multiple crises.
Irresponsible spending on goods which consumers do not need and/or can not afford - from houses to iPhones, from gas-guzzling SUVs to bottled water - have created a spendthrift economy that has decimated savings, turned the US into a debtor nation, and allowed capitalism to become dependent on unsustainable consumer spending.
Shopaholics head for the mall with no goal in mind except to buy something, whatever
Responding uncritically to the new "ethos of infantilization" that turns adult shoppers into impetuous and grasping teens crying "I want, I want!" and turns children into unaccountable shoppers, consumers are shopping themselves and their societies into bankruptcy.
Where once capitalism produced goods to meet real human needs, today it manufactures needs to sell all the goods it produces. With billions spent on marketing, consumers are easy marks. "Shopaholics" head for the mall with no goal in mind except to buy something, whatever.
Until consumers once again become prudent adults and reflective citizens who make shopping decisions based on what they really need and can afford, capitalist producers will conveniently insist they are only giving people "what they want", and continue to run the market economy to the ground.
DR. LINDA YUEH: FELLOW IN ECONOMICS, OXFORD UNIVERSITY
Dr Linda Yueh warns that more banks could fail
The credit crunch indeed shows the end of this era. The lack of recognition of the end of American economic dominance contributed to the severity of the credit crunch; resolving it will require no less than a new world order.
The mis-priced risk at the heart of the US sub-prime mortgage crisis is a result of low interest rates and excess liquidity. Quite unusually, this did not cause inflation due to globalisation and the global appetite for US debt, which kept down prices and the cost of borrowing.
While economic growth in the US and EU has stagnated, global growth is driven by China and other emerging economies
The US Federal Reserve then missed the signal that money was too cheap, which led to lenders seeking widely for borrowers, even if they were sub-prime ones.
To resolve the resultant credit crunch in a globalised financial market, the West will need to work with emerging economies, which have a lot of credit and liquidity, to re-balance the global economy with capital and savings moving eastward (as seen in the sovereign wealth funds re-capitalising Wall Street).
Perhaps the clearest sign of the end of the current era is that while economic growth in the US and EU has stagnated, global growth is driven by China and other emerging economies.
Companies are turning to those markets. Those countries are not as rich or entirely de-coupled from, and won't replace, the West, but nevertheless this turn heralds a new world order whereby economic power has shifted East and the world economy is no longer driven by one dominant country.
Recognising it, at the very least, offers an opportunity to shape a more coherent international economic and financial architecture. It might even safeguard against another credit crunch mess.
ANDREW MOSS: CEO, AVIVA PLC
With hindsight it is easy to say the rise in consumer spending was unsustainable, but if the well-paid experts at banks and hedge funds failed to predict this sudden change in conditions, how could consumers expect to?
Many were actively targeted by lenders with aggressive marketing campaigns for 100% mortgages for example.
Is it unreasonable for someone to assume that if the bank is willing to lend, then they must have a fair chance of repayment?
Financial literacy also needs to improve; it is not taught in schools
And it's not all about iPhones. Of course, there will always be a small minority who have acted irresponsibly, but most consumers have simply borrowed to give their families a roof over their heads at a time of rising property prices.
And remember, many will know from their own families that, over time, property has been a good investment.
Our research among consumers around the world shows they feel that life is now more risky from a financial perspective. Only a third live for today. They are not taking on debt lightly and there is a will to save - they just can not afford to.
Regulation needs a rethink
The UK is one of the most regulated markets in the world but consumer confidence in financial services providers is low.
The limitations on advice mean people feel they do not have the information they need to make informed decisions and our research shows that many turn to family and friends.
We need to improve access to advice, presented in a way that consumers can understand.
Financial literacy also needs to improve - it is not taught in schools and it can not be learned from the previous generation because they have no experience of this global environment.
Budgeting is no longer just a matter of managing the weekly wage.
Industry and governments need to work together to simplify financial products, literature and language to help consumers plan ahead and make the right, informed, choices.
JON MOULTON: FOUNDER OF PRIVATE EQUITY FIRM, ALCHEMY
Bankers got rich by making others poor and they behaved like a pack of hungry dogs in a butcher's.
Sadly banks lost their integrity and engaged in 'fire and forget' deals.
The banks are now in a mess and they've put the UK economy into the worst recession in living memory.
Now the banks are working out how much of the truth they can tell about themselves - and everyone knows it.
The Credit Crunch Mess - What Next? was broadcast on BBC Radio 4 on Monday 15 September at 8pm.
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