Harvard Business School - Day 17

Wednesday, 23 Sep 2009
We had a very interesting lecture this afternoon by Prof. David Moss on the Global Economic Crisis. He is apparently working for the Federal Government on addressing the gaps in the system and regulation that allowed the current situation to eventuate. What was interesting was the way he explained how the Sub-Prime market was structured in the USA, the activities (Low Doc Loans, Mortgage Backed Securities, Collateralised Debt Obligations and highly leveraged financial institutions with unquantified off-balance-sheet liabilities) and assumptions (that the risks within the MBSs and CDOs were low and uncorrelated) that underpinned it, and how when some of these assumptions were invalidated it quickly morphed into a Global Credit Crisis, which in term spiraled out of control into a Global Economic Crisis.
It was very insightful and interesting, but also surprising and worrying in so far as there no widespread agreement or consensus as to the causes of the crisis  and if you lack causes it is very hard to identify appropriate remedies and put in place safeguards against a similar occurrence in the future.
There does seem to be growing optimism that the reactionary steps taken to date have probably (with a small p) worked and that there are "green shoots' in terms of positive signs of a recovery.
Another point made was the the hypocrisy of the USA in respect to the Asian Crisis in the 1990s. At that time the US argued very strongly and vocally against the Asian economies taking similar steps  to what the US has taken now (i.e. borrowing heavily and running huge government deficits to provide funding to stimulate their respective economies).