Summary of a talk

On 7th October, 2008, Stephen Connolly, an investment adviser at Credit Suisse, came to give a talk on the Financial Crisis in Netherhall House. He listed loss of trust among banks, lack of an effective regulatory authority and reckless risk-taking behaviour of investment banks as some of the reasons why the crisis has occurred. Giving a short history of how banks had passed loans to others packaging debt securities that were very risky, also called sub-prime loans. These risky securities were not worth the price and when the people defaulted on these loans, banks stopped trusting each other. This led to a string of failures from Bear Sterns to BNP Paribas to Lehman to HBOS. He was of the opinion that there should be a major pumping of money by the government to solve the liquidity problem, and even $700 billion may not be enough to keep the banking system going. With simplicity and candor, he described how the liquidity problem has led to a fall in the supply of loans and businesses have to delay their investment decisions if they cannot borrow, and this in turn will cause job losses. Stephen also spoke about the opportunities that exist in the market as the prices of fundamentally strong banks were artificially low. He expressed skepticism about the future but would not underestimate the ability of the banking sector to bounce back. There was however, little mention of how the underlying problem of reckless risk-taking could be averted, once the crisis is over.