Ten Years On: The Financial Crisis and the State of Modern Capitalism



welcome everybody I'm come on I meant on the economics editor of the BBC and net it let it never be said that economics is not the new rock stars because we have three people here who have filled out this large auditorium to discuss the small issue of the state of capitalism no less ten years on from the financial crisis now I became business editor of The Telegraph in 2009 and I remember meeting Bob Diamond the chief executive of Barclays Bank big cheer for Barclays and he asked me a year later when I thought all this would be over and I drew myself up to my full height I thought well Bob I've been a couple more years of this rather miserable economic news and I'm sure will be back to you know proper strong growth and here we are ludicrous economic forecasts as ever by me which was totally wrong and we're still here a ten years later dealing frankly with the funk of the financial crisis now of course there have been some big trends for 2018 which look a little bit more positive and probably net positive at the moment we've had synchronised growth in the main drivers of the global economy for the first time since the financial crisis but also against that quite interestingly we've had synchronised monetary tightening very gentle still in a weird world where we have monetary policies set for a recession and global growth now predicted to be close on four percent how long can that last for in the UK as we have had across many developed economies we have this historic income squeeze there have only been three general elections since the Second World War where voters have gone to the polling booths in Britain suffering and income squeeze and they are nineteen forty five 2010 and 2017 that shows the great historic nature of what we have experienced this long income squeeze each of those elections didn't work out that well for the incumbent Winston Churchill who'd won a war lost Gordon Brown who had saved the globe here told us lost Theresa May almost lost in 2017 so that shows the fundamentals when you ask people whether they want change or more of the same in the present situation they're gonna go for change whether it's Donald Trump whether it's brexit whether it's Jeremy Corbyn someone who can offer a solution to where we are is the the person or the issue that tends to have success we've had 10 years where returns to capital have outweighed returns to labor it was Lord Adair Turner the former head of the financial services authority who said to me that capitalism over the last decade had fundamentally failed in its central promise to the public that each year if you work harder and played by the rules you'd be a little more wealthy that has not been true for the past decade the last four quarters of data on borrowing and saving households have become net borrowers for the first time in the data set in the UK which goes back to the early 1990s we are borrowing income that we need to keep our lifestyle at a certain level these are fundamental issues how much of it is connected with the financial crisis so I am joined by three people of such Planetary brainpower it's going to be difficult keeping them sort of on topic and under control but it's a great pleasure to to welcome to the stage so Mary Ann amatsu carto she is professor in the economics of innovation and public value and director of the Institute for innovation at University College London she's advised policy makers all over the world including her dear old Jeremy Corbyn I believe for a relatively brief period but nevertheless dear old Jeremy Corbyn and she's authors also two very very key books as well as many others but two key books which touch on these issues rethinking capitalism and the entrepreneurial state and she is about to have published her book the value of everything makers and takers in the global economy Matt welcome Marianna Mervyn King I think the first person on this stage that is not only a lord but is a double sir which must be a first so title inflation for Mervyn King but maybe not much else and not my child other inflation but Lord Mervyn King of course governor of the Bank of England 2003 to 2013 one of the men credited with being the architect of the remarkable coming together of central bank governors around the world without them who knows what the effect of the credit crisis the huge withdrawal of of mainstream bank finance to the global economy may have been Mervyn King one of the architects of the remarkable synchronized response of central banks author of the end of alchemy money banking in the future of the global economy welcome Lord King and on his left Torsten bail director of the resolution foundation think-tank which focuses on standards of living on that incomes issue in particular and how is it we can make economies work for lower income low and middle income people formerly director of policy for the Labour Party and worked in the Treasury a special adviser to the Chancellor Alistair Darling we are going to chitchat here for a bit which you are welcome to listen in to and then after about half an hour 40 minutes or so I'm going to come to questions from the audience there will be people circulating with microphones and little paddle boards so look out for them as we get towards a kind of about 750 and then we'll get a good conversation going with you and with us here on stage so Mariana if I could start with you and let's go let's go back to the story Marian about where you were at the time of the financial crisis and I think that also be interested in Mary as an economist did it become clear to you and that what moment was it Lehman was it northern rock was it Rahl Bank of Scotland was it you know what was going on in Europe other issues that you were looking at did you think it became clear to you that this was something so fundamental that possibly ten years on we'll be talking about it in the same way we still talk about the 1930s and what it meant right so first so in September 2008 I was it was during a time that I was in Italy on maternity leave and I had just had four children in five years so I thought my problems are much bigger than anything that I'm seeing here in TV now and but I was lucky that at the time I was directing actually a big research project which was very much related to the theme of what I was seeing on TV happening that night and the research project funded by the European Commission which by the way tends to fund a lot of the research that many of us academics do and that's why we're extremely worried about brexit was called finance innovation and growth and I remember when I was watching TV that particular night I thought this is a perfect conclusion which nightmare which when did you think wow this is Wailing woodland it was lame and I remembered that I thought because I was actually writing the conclusion for a report that we were writing and the the whole grant which was called finance innovation and growth actually had been looking sector by sector but also country by country at the degree to which finance as a sector had become dead linked to different areas that we know actually caused long-term growth not short-term kind of speculative growth and my first kind of question in my head was is this really just about these particular banks or is that actually about the financing model of how the sector had again become delinked but also the relationship between finance and actually how companies themselves were being a if you want incentivized so this whole issue around corporate governance which I'm sure will come back to before but the big question for me when I was sort of seeing it sort of play out on television was this is bigger than just the banks how long will it take for the conversation to move on and in fact I think it took a very long time for it to be a bigger question for too long I think and partly that was why I don't think we've reached the point where we should be at too long it remained a question of finance how do you reform finance versus how do you actually reform the system in which finance should be kind of central in terms of fostering and how many people mariana did you think fundamentally shared how many economists saw or people in the finance sector or people in the corporate world before the crisis really bits and people the public had to engage in it shared your concern that there is this D linking between what growth looked like it was doing and what was actually happening I'd say few but even in my little narrow area which is the kind of economics of innovation trying to really understand what drives companies like Apple and Microsoft what do we know about you know what sort of brought them about I remember that one of the things we kept having to sort of stress in our conversations with policy makers this is before the crisis was stopped talking about the need to have more finance right this idea even if a credit crunch or the fact that SMEs needed more financing or that there wasn't enough finance to do the kind of things that were perceived as needed I remember that we often myself and my team of researchers this was not just a individual battle we kept saying think just as much about the quality of the finance so you know even things that were very different from lame and the fact that you had a venture capital sector which was increasingly short term exit driven trying to exit in three years through an IPO or a buyout we were observing was really affecting in a very negative way what at the time was the kind of emergence of the biotech sector and you had dysfunctions occurring in the way that production distribution and innovation were occurring because of the quality of the fine and yet you again kept falling back to this notion of we need more money to do stuff as opposed to let's really think about the structure of the funds and the finance and make sure that they're structured properly because money and finance are not neutral how you structure finance actually affects what happens in the real economy and that's like a big point which I actually continue to have to often talk about finance is not neutral okay Marvin tell us can you give us some insight to what it was like being a central bank governor as you became increasingly aware or see before the collapses began as you became increasingly aware that something was so fundamentally structurally wrong with our finance system what what was the atmosphere like in the bank and what did you need to do well it was a lot calmer than people might expect because those who watched the crisis on television with you actually it was a little bit like seeing the highlights of a football match where you see two minutes and any match looks exciting if it you just show two minutes and the ten minutes of news highlighted in the evening made the thing look more dramatic than it felt when you were working very long hours and dealing with individual banks and problems and you work through them one by one I think the the more difficult part of it was trying to persuade people that you know it's certainly by the end of 2007 well before Lehman Brothers it was clear that our banking system needed to be recapitalized that is it needed to have more equity capital in the banks to absorb losses and that there's no way the banks could easily borrow money from the rest of the economy if people had lost confidence in it and they wouldn't regain confidence unless the banks looked much safer and I reckon it took seven or eight months before we managed to persuade people that this was the problem that had to be tackled and I think that the British government took that lesson and the UK was in fact the first country to recapitalize the banks and I remember going to Washington after the collapse of Lehman Brothers and the Americans by that stage had obtained money from Congress they wanted to use that money to buy assets that had fallen in value and they called them troubled assets actually this would not have been a very sensible thing because the state would have been offered the worst of those assets and instead they used it to recapitalize their banks following our model so I think that that going through this there was no one moment where you felt this is you know drama there were lots of moments that were critical and difficult and awkward decisions had to be made but it was the never ending it was you know in that sense you mentioned Churchill earlier on the second world war lasted less time that it did in handling the financial crisis and at every stage in that crisis there were meetings which sometimes lasted all night so and and staff were up working hard to find a legal solution to a problem that it arisen so I don't think it was in that sense there was one moment of drama there's no doubt that the the dates that most people used to date the crisis is the 9th of August 2007 when the French bank PNB parabot announced that it wouldn't allow any further redemptions from its funds and then people started to and they they pinned that on the US mortgage market and then people started to become worried and from there on you could see the the state of the banking system their ability to borrow money you know waxing and waning during the time until Lehman Brothers twelve months later failed and then the whole of the Western banking system would have collapsed had it not been for state intervention can I recite ly reformulate supposedly the Queen's question which was so economists why did nobody notice what was happening before it happened I mean this was a period up until 2007 or so in 2008 we certainly started seeing the effects of the banking crisis in the real economy of the Great Moderation Gordon Brown famously the end of boom and bust in the UK there have been criticisms that we became the bank became too complacent about risk and about financial sector risk in particular how did you see it from inside there were these signals but did you feel that the system maybe the bank itself had become a little complacent no and I think I would go back if you asked Mary honor what was the date of the when the financial crisis began for me the underlying causes of it go right back to the fall of the Berlin Wall and the transformation of many previously centrally planned economies into market economies they started to save a lot of money particularly obviously in Asia and from that date on we saw this inexorable decline in long-term interest rates when long-term interest rates go down the prices of all assets not just houses but also shares and government bonds go up this is the reverse of what's happened this week on Friday and today and it went off for 25 years now all of this was visible it was seen and we could see the problems that arose from it we had a very unbalanced world economy we had some countries exporting a lot and others consuming a lot we were in the consuming group together with the United States China and Germany were in the in exporting group this could not go on that what was clear but no one country on its own had the ability to stop it happening it would have required a coordinated approach which was not feasible until a crisis occurred it's very striking that the only time you saw signs of cooperation internationally was really from the beginning of the crisis late 2007 particularly strongly in the autumn of 2008 spring of 2009 with the g20 in London which Gordon Brown shared but by the end of 2009 the enthusiasm for cooperation had disappeared and by 2010 it had gone why did you put that dancing was that a mistake was that a prompt that was a problem it's why I call him I booked the prisoner's dilemma that is that no one country or no one group of politicians has any incentive to be the first to sacrifice their domestic interests and their own political interests in favor of some global cooperation and I think the IMF got distracted certainly in from 2010 onwards it got badly distracted by the crisis in the euro area and they got involved in that in a way which you probably shouldn't and it should have seen its role as being out of the headlines not in the publicity and on television and trying to point out two countries the need not to coordinate measures all do the same thing but to agree on the diagnosis of the problem and what had to happen to put it right and I think my big concern today is that the underlying problems are still there so that the banking system is much safer than it was indeed the crisis might not have evolved through the banking system it could have come about through a crisis and exchange rates and it that one might have affected stock markets in fact it came about through the banking system because asset prices had risen very sharply as interest rates came down people needed to borrow more money to finance and to purchase those assets and the banking system did what it was supposed to do which is to provide lending when people demand it at the interest rate that prevailed the real problem was that interest rates were too low in many parts of the world and that the banking system did allowed itself to grow rapidly without issuing more equity capital so that they would be in a position to absorb losses if and when a crisis came we'll come back to whether the banks are in or how safe the banks are now and what threat they may still pose to the global economy but Torsten if I could come to you advice to Alistair Darling Chancellor of course through a lot of this cried I was always I was always astonished speaking to Alastair as I was fortunate to do through a lot of this time and then interview in post the sort of the rather flabbergasted nature about how poor poorly functioning financial system was and that banks didn't have this didn't seem to have the most simple intelligence about how they operated about what they operated about the links between different bits of the of their banking system sort of rank ignorance of how they even worked themselves well what do you put down them the moment for you and tell us where you were and what it felt like being in that kind of political either storm in the same way that Mervyn was in the sort of set of the monetary or central bank and financial stability I have the store well events like this I'm always slightly this is basically reliving trauma yeah the textbooks say you should only relive trauma it's quite a dangerous thing to do you should only do it with a really good therapist yeah Lehman Brothers stands out as the moment that the world where clearly policymakers in this case US policymakers had made a huge mistake and that it was the only point where it looked like Beck was an existential crisis to the world's financial system as opposed to individual countries financial systems so there was clearly existential crisis for the Irish financial system which went bust and similarly for Iceland by sailing brother stands out as the kind of existential moment for everybody and actually I'd say the bit that highlights the best bits of decision-making for the reasons that Melvin says about pushing recapitalisation as the underpinning answer to the crisis the immediate crisis them that's all stands out them but I said the crisis more felt like I'm not sure I quite agree with moving that there was didn't feel like there was quite a lot of drama I kind of could have done with a lot less drama so like Barry then ivan bet it seemed to be every we every weekend every we were working over the weekend to buy a different bank or to bail out a different bank or to reorganize a balance sheet of a different financial institution but then but it it more felt like a long drag where every now and again different issues would come to the fore clearly Northern Rock in Britain was the first big public noticeable things over that had become clear over August 2007 that they were problem building and the northern walk was the most likely fokin for them in the UK but this what September the 13th 14th I think it is in 2007 when it becomes clear we've got institution that is cannot go on and actually in retrospect I think there's probably although it although towards the end of 2007 early 2008 people start talking about at least in private about the need for more caftan lots of British banks the entire banking sector is largely in denial about that I think what you're getting at Mervyn I mean the degree to which people who ran our biggest banks and member British banks at this point were global banks mainly obvious is the biggest bank in the world Barclays is a huge international bank even banks that you've never heard of had become pretty international there at which people would people on the boards even later on in 2008 when you're seeing Bear Stearns in the United States getting to serious trouble would say to you we've got no capital problem at all we've got we've definitely got enough capital yes there's a bit of a liquidity issue because no one will give us any money but if you just saw that out we've got neighbors thought it was overnight lending if overnight lending could be fixed so some of them thought that yeah the problem is that people are having at they thought they had a version of a bank run but it was manifesting itself in people not lending to them overnight as you say there and we used to have a screen up in the one of the rooms in the Treasury which had LIBOR which is the rate of which banks can borrow overnight showing what was happening to it that was definitely not a good idea for blood pressures it was largely doing this from large chunks of this not always but for most of this face so there so yes definitely right up until individual banks picked up the phone and said we cannot go on and you have which was RBS in the autumn after Lehman Brothers their northern walk earlier most banks boards were I don't I can't I don't to say categorically whether they were complacent as in they didn't think there was a capital problem or they did not want to have said there was a capital problem until the point of crisis and if it probably for different ones it was probably different things and it is to be fair quite hard to tell what looks like a liquidity problem to one person can look like a capital problem to somebody else that's not completely ridiculous but yes everybody right until the point to which they were saying we're going to close the in three hours and they should do something were leave as a conversation team Philip Hampton and Alistair darling yes that was one of the highlights yeah that would have made it to the highlight show it would have crept in I mean it doesn't count to the goal I was the first time in my life I wrote a check for 35 billion pounds do you agree with four stands point that if America had had had a different approach to recapitalisation at the beginning at the time of LeMans some of the effects of what happened could have been mitigated no so I don't think the America has made a mistake I think we livin brothers the best they could have done is nationalize it they claim they didn't have the legal power to do it that's not for me to say but I think that even if they'd say that once something else would have happened as we saw in the two weeks after Lehman Brothers failed so at one point or another there would have been the need to recapitalize the whole system and I think once people had understood that then they wouldn't doubtedly have been the realization that there was a major problem and the problem would have gone away until the banks had actually been recapitalized in the states that occurred in May 2009 and I think you can that's the point where the banking crisis as such ended some banks still needed to do more work but people were confident that the system would carry off but I think the the extent to which we got into a position in but which banks had borrowed too much money were over leveraged in that sense we was there in 2007 beginning of 2008 and the banks as Torsten said were in denial they adamantly refused to admit that this was the case many of the bigger banks had leverage ratios of 40 or 50 to one which meant that for every two pounds that they put in a shareholders money you know 898 pounds were borrowed well it most businesses if you borrowed 98 percent of your total capital you're very fragile to say the least northern rock had a leverage ratio of eighty to one extraordinary thing of course is with northern rock that according to the new international regulations introduced in Britain at the beginning of 2007 northern rock could say and did say that they were the best capitalized bank in the UK and that's because the regulations and this is my criticism but much of what's happened in the regulatory front it takes years to draw up international agreements and regulations by the time those regulations came in the assumption was that the safest lending the banks can make were mortgages and that it didn't matter how you financed yourself well both of those were very bad assumptions and yet once the regulatory train had started you couldn't stop it and direct it onto a different track we still got that problem today we still have that regulation is sort of in the rearview mirror I mean we've we reckon that the capital requirements have been redefined etc but it's still based on a view that a group of people beating together in Basel from different countries think they know enough about the future to judge which assets are safe and which are riskier and I think that's an assumption of knowledge which is a very dangerous thing to believe in and it's better the regulation works best when it's simple not when it gets so complicated that people devise very detailed rules which may be have been perfect if we had applied them ten years ago but by the time the next crisis comes these rules will not eventually done what level would you put the chance of another financial breakdown of a similar level to what we experienced in 2007-2008 well the banking system as such is still risky in the sense that banks borrow short and lend long and if the people who've led to banks for short term maybe not just overnight but for three months decide that it's too risky to lend to the bank for three months because after all you know if you're really if you think something nasty could happen to a bank why take the risk of lending for three months to the bank you just get your money out and lend it to someone else for three months until the the nervousness has gone away banks are still fragile in that sense and we don't have a mechanism for doing anything other than throwing money at it if the crisis were to occur and I think it's not difficult to see how where another crisis could come the amount of debt in the world today is higher even just in the private sector than it was in 2007 relative to GDP so there's plenty of scope in the next decade for not this time a French bank to announce that some of its funds can't be redeemed but for a few people maybe in China maybe in emerging markets the European Bank or to to say we can't repay our debts once that happens and people ask the question well the value of the assets on financial institutions around the world is the value of the loans that they've made but if these loans can't be repaid then their assets aren't worth as much as they say they are and in which case the bank looks very fragile indeed so we have not got to a point where we would be able to claim that the we are immune to another crisis that doesn't mean to say one is around the corner and of course you know toasters description of banks being in denial of thinking they were fine that isn't true of banks today the people and running banks today are only too conscious that things can go badly wrong but of course at some point the people who remembered the last crisis and who worked in banks will have retired and at that point banks will be run again by people who think wow this is terrific you know nothing can go wrong but I mean this is a natural human emotion I remember being a student in the 1960s and thinking about the Great Depression and I thought you know we're learning Keynesian economics there will never be a Great Depression again we know how to deal with it and when you looked at the photographs of people from the 1930s boy did they look like fuddy-duddies and hats and whiskers you know we were modern we would never let this happen again well we didn't have a Great Depression in most of the industrialized countries Greece certainly did southern Europe has certainly had something comparable to that but nevertheless we had the deepest recession since the Great Depression and a collapse of the banking system which required massive state intervention not in order to protect the banks but in order to protect the economy from the banks Mariana give us your view of where the economy is now and how linked I raised a few of the structural issues of the something developed economies are facing at the moment how linked is that to the way that finance is still working and what is your view about the huge move by central banks and govern governments to recapitalize the banks did they save the banks from themselves and therefore save the economy or did they actually simply cover with a wash a huge wash of money the fundamental problems that are still there right so I mean coming back to my earlier comments I think that and in some ways I haven't heard this perspective in terms of what the really kind of structural dysfunctions were in the economy where some of what you guys were talking about was kind of the symptom of the sickness right and what I would say was the structural kind of cause which I would argue is still there today and hence one should be extremely worried today and as you just mentioned the the ratio of private debt to disposable income is basically at record levels and that's what caused the financial crisis it was private debt not public debt but the actual structural composition of the economies is still very sick because the diagnosis was the wrong one and why I think it's sick is you have two types of financialization on the one hand you have a financial sector that's basically still obsessed with itself in other words finance finances finance only something like 15 percent of funds from the sector and by that I mean the widely defied defined sector actually goes into the real economy into business right and then you have the real economy so businesses in different industries whether it's pharmaceuticals IT or energy which are also financialized so they're not just they're sort of innocent little businesses needing the finances which isn't coming to them by financialized business I mean businesses that increasingly these are especially the large businesses for example the S&P 500 which are increasingly so it's getting worse spending their profits instead of reinvesting the profits back into production innovation new machinery capital expenditures in areas like share buybacks so boosting stock prices which boost stock options which boosts surprise-surprise executive pay now both of these problems then really hurt the economy right so this whole issue for example of you know the robots are taking our jobs they're not taking our jobs robots or if you think of it in terms of mechanization has been around for about 200 years you know David Ricardo already back in 1821 wrote a book called principles of political economy or chapter 31 don't ask me why I remember this both on machinery was like oh we're in trouble you know all these machines are taking jobs and they're gonna reduce wages but then what you had for 200 years since then was that fine some jobs might be you know taken in this area but as long as profits from the the investment in those machineries were then reinvested back in the economy new jobs are us so when you have this financialized real economy you get a break in that mechanism so you no longer have the profits going back in which kind of creates a creative destruction kind of dynamic and so this this this is a huge problem and this I would argue is one of the key problems in terms of wage stagnation we've had wage stagnation since the 1980s so when we do look at private debt figures it's also because people have had to in some ways just to retain existing living standards take out debts right it's not that they were just so foolish oh these stupid people taking out debt that they shouldn't have been they actually had to in order to compensate for for these stagnant wages which were partly I would say greatly a cause of this of these prophets not being reinvested and I would say that both these elements of financialization have not been tackled a company like Apple by the way under Steve Jobs almost all the profits under jobs were be invested back into the company under Tim Cook Apple has become one of the most financialized companies with you know over 100 billion share buyback schemes you know so corporate governance how businesses are structured matters and the big change was from the 1980s onward so I would agree that their problem began in the 1980s where this kind of notion that the that the point of companies is to maximize shareholder value is actually quite a recent change and those are revolution before that there was more this idea of stakeholder value that there is different actors in the economy that produced value and you know workers in a company and you know public actors etc were just as important as the shareholder and lastly the just the Cold War you know mentioned that you made so 1989 I would say that just almost in a cartoon image wise one could also argue that the crisis also began when some of the smartest people in the world so some of the top scientists in Eastern Europe ended up going to Wall Street and someone once told me a joke that you know the financial crisis was basically caused when you had this massive shift before that you had you know people in say a college classroom the smartest ones ended up being the managers and the kind of dumb jocks went to go in Wall Street when you had a reverse of that the smartest people going to Wall Street and some of the dumb people becoming managers but this huge reversal of where energy and expertise went no matter let's go we're coming up to where I want to bring in the audience but let's go for the three of you but same question you've given it the diagnosis quite a lot of diagnoses of why the economy's is where it is give us just two solutions that could pull us out of the situation we find us in well the first is and this is sort of a separate what just then as a continuation of what I just said so it's more logical we need to define an shil eyes economy there also has to be incentives for that currently we actually have incentives which reward companies which are short-term and speculative over those that actually invest in the long run so something like capital gains tax and this was actually labor in this country that did this capital gains taxes structured extremely badly so that it was the Labour Party that reduced the time that private equity had to be invested from ten years to two years to get this massive tax reduction that's really not very smart if you actually want companies to be investing in the long term but secondly there's no point in creating all this money just to save the economy right trillions were created both in the UK and in the u.s. unless you all saw at the same time creating opportunities for those investments and hence we need really smart and strategic what I would call mission oriented fiscal policy in the economy which actually creates the opportunities whether it's around green investments the green economy a new form of sort of Digital Agenda if you do that seriously then this creation of money does more than just save the banks because that money just ended up back in the banks it didn't find its way towards the real economy so what kind of macro sort of solution is you better have smart strategic you know fiscal policy aligned with this monetary policy and on the micro level deep financial eyes big business because that's bad for skills it's bad for an innovation it's very good for inequality inequality is rising because of that now Torsten you're you're the resolution foundation looks at a lot of these issues has certainly identified and we've done a lot of work with you certainly identified how real people are experiencing the economy now and why there is this reaction maybe against capitalism what do you see is some of the solutions Mariano's obviously said that the financial system itself needs to be reformed and the tax system around that and maybe governments need to be bolder in themselves in being innovators and being entrepreneurial and having some kind of mission mission led approach what's awesome for you and the foundation would be things that the the government the businesses not just all see governor's don't run economies businesses should be doing to re-engage the public in the notion that the capitalist market might actually be the best form there is a good start would be to step back and say because at the moment we're you know we're talking about lots of individual dates what happened in April then what happened did in the following autumn when the history books are written to cover that period they are in kind of 10-15 years time they'll basically say just two things they'll say Britain had the biggest financial crisis in its history and then it left the European Union basically I think the question and whatever you think about the the decision to leave the European Union I'm gonna take a punt on where this audience is but that's obviously not where the whole country will be the whatever you think about that that that's a pretty suboptimal result from ten years disaster basically there because whatever you think about a lot of the fundamental problems that we are facing as an economy were there yes I mean but what I'm trying to get to up before the Princip what no no there's not any break see results call the improvements yet right there I make I'm just making appointment just the history books will say that what should they have said Britain had a huge financial crisis it dealt with that financial crisis actually pretty well in the short term yeah but then it took a good hard look at itself and started sorting out some of the underpinning problems that were there so for example that said that said well we've put up with the level of wealth being accumulated by each generation whatever falling for everybody born after 1955 yeah so you Pete who was born in like around 1955 anyone you are like you are peak wealth for Britain maybe not you personally may not feel like that all the time but that's because measured about the big check there but that was the like and we've been going backwards ever since then so actually so for example a generation born in the early in the first five years of the 1980s the first half an idea that's you with modern politics you love all these lies has half the wealth at the same age as people born just five years before half yeah somebody a man in Manchester today is earning the same as a man in Manchester 17 years ago 7-0 now 1 7 1 7 this bigger problems in and when that it's those things as it's the facts like that as much as you know what exactly has happened to individual banks actually don't think the problem the next problem for Britain is not banks are gonna go bust again and that's that will come when people forget why they we needed these tough regulations in the first time I open now is I'm problem our problem is that too many people look at our country in our colony and say if that's the best we can do it's not good enough and the problem is they're kind of right so that is I think things we should be doing or addressing those problems we should be building houses and then restricting people's ability to buy second third and other houses if we want to change what the outcome people are saying baby boomers had a 50% higher homeownership rate of 30 than today's millennials millennials on average have spent forty four thousand pounds more on rent in their twenties than the baby boomers which is roughly a deposit on a house at the mmm now a slightly unfair but the my point is that is what people are asking for they're saying how come we've now got 1.6 million people with fat with kids living in the private rented sector which was just six hundred thousand ten years ago yet we've done nothing to increase security for families in the prior renter sector so yes we should sort out our financial system yes we should sort out our economic theory and our convoluted you know ideas that underpin a lot of what we do in terms of policy what people really want isn't different economic theories they want different economics they want us to address some bread-and-butter issues about better jobs better housing cheaper housing and a better stand that is the UH that's the real disaster the last ten years is that the energy from the crisis has not been used to fix any of those problems do you think Mervyn that the emergency moves that were made to rescue particularly the developed world economies has actually had as many positive effects as you may have hoped for or to go back to Marianas point has in fact yes you saved the banks but actually the money just went into the banks to saving them and really promote this type of economic reform for real people that might have been expected no I think the measures that were taken were necessary but they weren't sufficient and I think if you look it's very important to distinguish between incomes and wealth here they're different phenomena so if we take the figures that Torsten mention which are really quite extraordinary about how the age at which people become homeowners has risen so dramatically in such a short period of time I think that is entirely accounted for by the fact that long-term real interest rates have fallen to such low levels that house prices relative to incomes have reached extraordinarily high levels that was an almost mechanical consequence of very low interest rates now the consequence is that people in my generation found that on paper at least we seemed much wealthier because our houses are worse phenomenal amounts of money because not clear you can do anything with this unless you want to live in a field in a tent ok nevertheless it means that younger people cannot borrow the money to become homeowners now the point about this is that as interest rates go back to normal levels which I hope over 5-10 years they will then that situation will reverse and house prices will fall relative to incomes in other words we may be in for a long period of very stagnant house prices and the new young in 20 years time will actually be just as well off as I was in my generation it's the current generation that will lose out they will have bought houses if they had been able to do at the peak and they'll be selling them at the trough so that's the wealth aspect which I think time and higher interest rates will resolve incomes is a different issue because total income in this country as it is in the United States and most of the industrialized world is about 15% below where we would have expected it to be at the beginning of 2007 by now and I don't think that is something which is easy to change without greater cooperation in the world economy to get back to a more balanced structure I I don't want to deny that the issues that Mariana raised aren't important they are but nevertheless this big gap between where we should be and where we are is I think directly the result of the fact that we failed to deal with the structural imbalances in the world economy this is a macroeconomic issue and we have to get that sorted out and I think the unfortunate thing was that whereas in 2008 2009 central banks were absolutely at the you know key point of dealing with this crisis people then thought how all central banks can do miracles and they are the only game in town actually the role of central banks should have been diminished from you know 2011 and 12 onwards and the policy responses should have been focused on other issues but as I say I don't think any one country would have found it easy to get out of this on its own and they haven't but I mean we've been talking about structurally global structural imbalances for decades saver countries don't want to give up being saver countries and debtor comp countries are then stuck being debtor countries and there is never any structural movement is there to keep whacking our move – in the end there is because what will happen is that has happened in the interwar period the debtor countries default and the surplus countries which have lent the money and feel they're very affluent because they own lots of claims on other countries actually don't own anything of any value and when they realized that that would be a big shock so if the irony in a way is that Germany with a very large current account surplus eight to nine percent of GDP is accumulating each year almost ten percent of its income annual income and investing it in claims on other countries during the interwar period it was the other way round and it was the Germans who pointed out quite rightly but how on earth could they be expected to repay debt and meet war reparations if they weren't allowed to earn an exporter which will give them the money to repay the debt and if we are pushing countries into a situation where they can't get out of this trap then in the end we shed Yuling of debt on a large scale becomes inevitable moran just forget when we talk about the world i think we should also admit that there was huge differences actually in how the world reacted to the crisis so you know obama had a 800 billion stimulus program we kind of forgot to do that here so there was this kind of almost for the first time I think since world war two countries in Europe deciding to be procyclical after a crisis right I mean the point of counter cyclical policies and I'm talking about mainly fiscal policies is you know to get you out of recession so it doesn't turn into a depression and if you look at the data before World War Two the four sort of Keynes and economics came into fashion there was actually depressions not just recessions every 20 or so years and so the fact that both in the UK call that austerity call it what you want but this lack of serious stimulus and in Europe in the eurozone this kind of failure to really diagnose the problems of the weakest countries the so called pigs I'm Italian so a lot to say it but Portugal Italy Greece and Spain as a beautiful word coined by Goldman Sachs where those countries actually were quite weak not because they had been spending too much but because they had been spending really kind of stupidly so Italy for 20 years had a zero growth in productivity is GDP almost hadn't grown in terms of growth rate and in that period and so what they actually needed was to rethink you know the role of public but also private investment private investment had been quite an Arsenal in Italy so this kind of you know eurozone kind of mentality that these weak countries and just you know simply needed to cut their public debt in order to get out of the crisis was an obvious huge mistake the UK which failed to have a stimulus program was a huge mistake and would this lack of growth that you're saying should have you know come back since the crisis you know would we have this stalemate have there been a serious fiscal stimulus and I think it'd be very hard to argue that it was purely imbalance between two thicknesses replying then we must go to be okay very very the problem in the euro area was not that they had austerity as such but they had nothing else they have no they needed a weaker exchange rate they needed to devalue the UK had a 25% depreciation of sterling and it was reasonable to expect that if you want to rebalance the UK economy to encourage resources to shift to exports you have a big boost to the incentive to export and to cut back on import substitutes through a depreciation weight and then and then I'm gonna need to cut some domestic spending so I don't think that was that was the big issue there are plenty of things going wrong and there are big issues that orsten referred to about intergenerational inequality that need dealing with but they're quite separate I think from wealth and income the well form will come right when we get interest rates back the incomes warm or not okay fantastic questions questions questions now we have lots of people walking around with sort of paddler balls and things there's a anyway this red one here should be great in terms of the stagnation we have had over the past ten years and argue longer in wages is the magic bullet now we have to wait for technology to kick into gear we have to wait for things like artificial intelligence or the room-temperature superconductor for example that will dramatically increase productivity and is that the magic bullets get wages up and get debt get debt down do we have to hold out for technology to come to our aid source it is gonna save the world technology I mean probably not there's a lot of things going on in your question I mean in a very short term the thing Mervin said right at the end there which is about this big depreciation of sterling what happened in 2008-2009 but if people thought the Britain was particularly affected by this crisis and actually repeated itself on a smaller scale off to the BRICS it vote I actually think one of the things looking back from our said earlier what are the big mistakes we made one of the mistakes is we thought that every recession was like the last recession so all the planning meetings about what we were going to do to deal with this crisis apart from leaving aside saving the banks and west for the real world were what unimportant we'll hit three million as it had in the 80s and 90s repossessions will go through the roof and insolvent seas will increase significantly all three predictions that were wrong now and there's reasons for that although the big one is low interest rate environment that was not the same as the 80s and 90s the big thing we missed is that that depreciation fed through to a very big spike along with some oil price changes in inflation around that time the suppressed real wages significantly nowhere we haven't seen before and we've actually never seen before and then right the way through from then till 2014 wages are falling and we're now we then had a small mini boom in 2014-15 bit of 16 which was basically very low inflation not it's not the wages it's not that everyone's been getting wage rises inflation was just very low then now and then since brexit high inflation again falling real wages again so even today ten years on from the financial crisis real wages are 15 pounds a week lower than they were at the time of the crisis now what's going to get us out of that well inflation is slowly recede likely to recede slightly will technology get it out of that not what is well I think that well technology is where it is I don't think one is I mean Mariana's much better place to talk about what we can do to boost that but that is that is kind of happening I don't think that is that can be the answer though to our you know the reasons when firms need to invest to use technology if you look at we spent on up in Sheffield you can spend time with the manufacturing firms there and you wonder why let Sheffield has a very high level of low pay it's not the technology doesn't exist it's the firms do not use it heute like they have very bad management and they have very low take-up of technology and you say to them you know how's things going in Sheffield and they say oh well it's going okay and you say no it's really not you know it's really not or you say to some of our sectors so in hospitality today 61% of the workforce is low paid 61% and you say – you know there are constraints clearly there when people don't want to pay more than half – for the hotel room or their food but we have also got business models based on not taking up technology in some cases now what's happening right now is a big experiment actually this area because in Britain what we're about to do is significantly reduce our input of low paid labour and we're putting up the price of paid labor the earnings inequality in Britain is falling quite significantly in the moment because of the National living wage the minimum wage is rising fast and everybody else is basically flat yeah so earnings inequalities for overall inner court is not falling but earnings of equality is falling and for the labour market that combined with falling migration is a huge huge change and that is actually what is more likely I think it's more likely that the minimum wage higher wages will push technology as in if it's more expensive to hire people you instead go and get some technology rather than technology causing the mariana yeah I overheard a big sigh from you there what were you worried about so I would say well it is technology occurs within sort of a system right and technology has never been the sort of panacea even think of mass production which was a huge technological kind of revolution actually organisational revolution of how production occurred which many researchers have shown actually then created all sorts of growth in the economy that wouldn't have happened without other things happening at the same time in that particular instance without suburbanization people actually moving to the suburbs these new mass-produced things whether there were cars or washing machines would not have actually become fully diffused and fully deployed throughout the whole economy so when today and if you know Robert Gordon but he's quite funny when he does this when he puts up the indoor toilet here and the internet there and says you know if you had to get rid of one which would you get rid of and then they'd gone outside today right in this point being you know God actually electricity in the indoor toilet have done much more for our economy than the internet where people are just you know on their job searching for whatever shopping on Amazon that kind of misses the point which the real question should be have we actually had today some ambitious policies that have actually allowed for example ICT information and communication technologies to get fully deployed and fully diffused throughout the whole economy and could we for example imagine some really bold green policies all the stuff about sustainable cities but also the kind of energy then the kind of policies that they have in German to provide a new direction also for IT let alone all these new sort of you know advents and things like AI and Big Data those as well could be used for some things or others and I'm always struck by how you know there's this lack of application for example of Big Data to certain social problems so remember the bedroom tax right it was like the stupidest equation it's like how many bedrooms do you have how many children do you have it's once bigger than the other you're out right so in a world of big data wouldn't it have been interesting if we had really you know complex algorithms and not just + – / equals whatever to actually make much more informed decisions on things like housing policy and you know improve the welfare state through the use of AI and big data versus simply allowing big data to you know basically improve things like personalized medicine so there's choices to be made on how we use existing technologies to really distribute them through advances in the real economy including improving the welfare state which i think is under incredible stress right now but also any of these new innovations not just existing technologies the new ones won't actually create long run productivity and long run growth without also these demand-side policies and personally I think those demand-side policies must bring us to a new greener form of production distribution and consumption Thanks all rights gentlemen hey tez Patrick senior economists with the Institute for Economic Affairs day – direct associate director please your floor is yours for a second or two thank you so it strikes me like a key theme here is the role of short-termism it clearly played a massive role on trading floors during the financial crisis but it also played a key role in terms of policymaking and regulation in terms of not being able to horizon scan and foresee risks now myopia is a very inherent inbuilt human aspect and obviously at the Institute of Directors we work with businesses to try and improve their corporate governance models to kind of shift from the short-term focus and profiteering to looking at long-term value creation that creates more sustainable business models I think the challenge really is is how we can transfer that long term governance to the policymakers and policymaking because inherently the political cycle is five years long and when we're trying to deal with crises in the global economy whether that's through technology through financial risk we need to start thinking decades ahead so I was wondering what solutions or innovations you might have to our institutional structures that could try and engender that long term ism in our political system Moman did you have how much of an issue was the short-termism of the political process and the need for results in that type of cycle that Ted touches on in terms of making long-run sensible regulatory decisions the notion of true or otherwise light touch regulation was a way of encouraging financial centers to locate in London and that we were going to be the friend of the financial centers so I two comments on this one about business and what about government and politicians on the business front I used to every month go out and visit to region in the UK economy and visit lots of companies and over the years I was governor I meant to offer a lot of companies and one thing which struck me was that the best companies I saw were very often private companies and the reason was that they weren't subject to this tyranny of the quarterly reporting season in which they were supposed to say why haven't your earnings gone up by 10 percent over the previous quarter they actually could say well we believe in what we do and we have a product we think will succeed we want to make it work and all the people I met who impressed me even in very rundown factories even if family firms but the same people were directors as the great great great grandfather's 150 years ago what distinguished them from companies that weren't so successful was that they were passionate about the product that they were making that could be pleats in stoke-on-trent it could be bred in different places I went to could be any steel anything engineering products but they were all passionate about their product so I do think short tourism short termism brought about by this focus on very short term returns on assets and short term volatility is a major issue the second one in government is I was always struck by how many of the politicians I work with were very focused not just on tomorrow morning's headlines but on tonight's stories on BBC so they didn't wait to the next month they were focusing on what was in there and that's is what generates an excessive focus on you know short term announcements a policy has become announcements rather than thinking about measures that are implemented you know the good old days there were this is a slight exaggeration but there's a real kernel of truth to it when people were elected and be formed a government they breathed the sigh of relief and said well we don't have to campaign anymore for another four or five years we can actually focus on governing for four or five years no longer I think after Bill Clinton we were in a world now in which you win in an election and the next day you start campaigning all over again and that focus on short-termism really does alter the ability of politicians to feel that they're not under the pressure to come up with some immediate answer you know every day they're expected to make statements to answer questions to have answers to everything I mean I used to go to the House of Commons Treasury Committee and I'd say quite often I don't know they regarded this as a totally appalling answer and but for politicians politicians are asked many questions on every subject on every single one they're expected to have the answer yeah that makes absolutely no sense because then you do get superficial responses it's very shortly tossing in Meritor some what's your sense of Tara's point about the governance issue we marinate touching is a lot actually you're saying is it's the key issue alongside financialization I mean Torsten is that is the problem that businesses are just poorly run and also just to poke a bit at Murphy and the notion of private companies of course in terms of transparency you give up a lot long in terms of being able to scrutinize private companies in return maybe for this more long-term focus yeah I mean on so on I think your question was shouldn't politics learn a bit more from the increasingly long-term business I think I'm probably a bit more on the both of rubbish at it on on the purely on the private companies I mean I agree with Mervyn on private broadly defined that is my experience visiting companies two of I'm a visiting a company up in Cambridge a few years back and they said to me they said the company up in I think it been the late 80s I said how did you get your company set up and they said I've never had anybody else give this answer they said we had a loan from Barclays and I said alright and I said what kind of loan a 30 year loan from Barclays but the mode to get a 5 year loan from Barclays now you'd probably have to put your house up again you would have to put your house up against it this company had gotten on you know unsecured 30-year loan which they had run their business on they have no quarterly reporting except insofar as they wanted it themselves so that is definitely well I'm not sure I agree about family-run firms being because of the productivity challenge for lots of them but clearly some are very good but you do see a big productivity drop-off when you pass a firm over to the kids in general you can't trust your kids to run your company it turns out they're on the politics short-termism yeah so Mervyn is 100% right that the the pressures are definitely I want to sound holier-than-thou now but the pressures are significant the structural pressures towards short-termism are real and significant 24-hour media cycle everything you've read about people like this hassling you you just wish they'd stop hassling you they're like this why you me sorry these two are fine right okay there it's a last bit irritating but all I would say without before we get kind of let all politicians off the hook again when we reflect back on this decade in particular in sort of the phase post bricks I do you think some of it is it's not just about the structure it's about the leadership it's about haha do people see it is their job to bring the country together again and to chart a kind of different direction as I was saying that addresses some of these core underlying problems or is it just what can I do to kind of exploit this division or play this game now and AH my view is that it is not the prompters that are to blame for the lack of that it is a leadership vacuum yep number three yes where I carry on number three and then number four number three there's a the general just in front of here has always been waiting for honor but number three yes sir the new populist are in the business of stoking up anger and then directing it all Peter can you introduce yourself Peter yorck the new populist are in the business of stoking up anger and then they direct it or they redirect it they divert it but who should people be angry with by which I mean the victims of the situation you will describe the financialization situation finance finances finance most wonderful phrase ever and how should that anger be seen as relating to the anger that has been stoked up the anger that's been stoked up by Trump and the anger that's been stoked up by the brexit merchants how do they align Thank You Peter let's have a number four just hang on before we come to that number four good evening I wanted to engage with some of the points Mariana raised specifically I think an oversimplified argument about share buybacks so this isn't really about boosting executive pay I think the bigger issue here is in the quality and the implications that so when you have elevated asset prices who that really benefits are people who have pensions or in the house or have an icer so what what that argument really relates to isn't productivity and the misspending or the productivity dividend is to do with those who own assets on the right or center of wealth distribution and those on the left side of wealth distribution who don't own any assets and then the second point connect to this is this really dangerous idea about picking winners in the economy so this idea of fiscal spending targeted at specific industries we try that in this country and ended in the 1970s we need to avoid going back to policies like that thank you thank you very much so I'm over I'm gonna stop with Peters question who should the people be angry with and who have Trump and the what did you say Peter the brexit the brexit is have they been stoking up anger of a different type so who should people be angry with first off about the situation they fight harder to do it the other way around because I don't think the anger has been stoked up from nothing the anger was there I remember at the Bank of England during and after the financial crisis the immediate aftermath of it holding dinners at the bank where I would ask people why is it the case that we're not seeing more anger I had expected that we'd see more anger now I think the measures taken by central banks and governments to prevent unemployment rising as much it did rise but it didn't rise as much as it did in the Great Depression helped to put a lid on the anger in the short term but I think people could see as time passed that since the the cost of the crisis in terms of GDP was very real and it was spread perhaps more on lower-income people's and higher income people the anger was there it was genuine and it was real so I think that you know much of what we've seen in the last few years in right across countries it's not just the UK it's not just the u.s. with Trump I think in Europe two people have been voting not for candidates but against the establishment and the people who were there before so I think there was a real sense of anger as Torsten said earlier that actually the the economy is not delivering what they had bought into after all in the previous 25 years people have been told very much by people in the financial sector that if they would accept market discipline a more flexible labor market if you work for a company and there aren't any customers you shouldn't expect the government to bail you out if they accepted this approach to market discipline then productivity will grow faster incomes would rise would all be better off and of course it looks as though that it worked except when it came to the financial crisis the market discipline didn't seem to be applied to the banks it wasn't they were bailed out now that was done for good reason to prevent not the banks from suffering but other people but nevertheless it looked like that and so on this this anger is very real and I think that we've seen it come through I predicted it would come through and we've seen it right across the industrialized world and it it is in my view of correlated with countries that experienced the financial crisis you don't see this in the same way anywhere near as much in Asia which had their own financial crisis much earlier or Latin America so it's a crisis of the industrialized world now the anger I think is the it's it's at the way we have chosen to govern ourselves and our economy and it's I would put it more deeply as saying it's that people should be angry about an intellectual failure it's a failure of ideas to put forward solutions to the problems which they see us is it being fair to them by sir mine Peter mentioned Trump Peter mentioned BRICS it is it being fed by people who want to break the present system in a way that is good for them and but it could be negative more broadly now I think that if you look at the United States so we don't get bogged down in brexit here look at the United States which is perhaps the most extreme case there is absolutely no doubt that the elite is represented by Hillary Clinton welcome absolutely there was no sign that they actually understood the problems that were being suffered by many people in the rest of the United States and the opioid crisis in the u.s. has led to mortality of white people overall rising in the u.s. not true of the black population not true of this panic population it is true the white population it's basically largely people with lower levels of educational entertainment but the last time we saw mortality rising was when the Soviet Union broke up and we thought that rising mortality was a sign of chaos in Russia alcoholism and so on we have it here in the United States and it's coming to the UK with beginning to see increases in mortality here and what do people think is the big issue it's political correctness it's other issues it isn't actually getting to grips with the problems that many ordinary people feel they face that is the crisis and that's where much of the anger is coming from marie-anne how do you respond to these so I'll take both just really quickly so this year on share buybacks so you're you basically just outlined what happens after that right which is that asset prices then get inflated but the point of share buybacks is this whole issue of reinvestment by the way we've been looking at the degree to which you have the share buybacks of which many you know the extent to which we have them was actually illegal it was actually illegal under the Securities and Exchange Commission in the 1980s and then all of a sudden it was sort of allowed and I would argue that this is a crisis of the kind of deals that are being struck so when you have a record level hoarding which we have in both Europe and the US over two trillion dollars being hoarded so inert to capital in the u.s. over two trillion euros in Europe record level financialization and again just look at the share buyback figures just the extent to which they've increased that's also a reflection of the lack of in some ways confidence coming back to the public sector so not just politicians but the public sector agencies which are often giving out these massive subsidies of which some may be problematic and I'll get to that in a second used to actually be in exchange for the private sector doing its part which was investing so coming back to the issue of innovation Bell Labs which you might have heard of which was one of the most famous kind of private sector R&D laboratories actually came from a period in history where the US government in order to grant a monopoly in this case to TNT said you know these profits that are being generated from a government granted not God granted monopoly have to be reinvested back into the economy into innovation big innovation beyond telecoms and that's where Bell Labs was formed and I would argue that the recent Karelian and capita crisis here this issue around outsourcing it's not about public or private it's the lack of deal you don't just give out a contract even to virgin with the rail without making it conditional on the private actors than investing in the improvement of the rail and improvement of the health system or the prisons versus even allowing that to become or short-term sort of speculative area in terms of the picking winners I mean to be honest that is the most ideological debate obviously we should not go back to the 1970s style just kind of picking a firm or a sector one of the ways to really revive industrial strategies to take which by the way this country is trying to do with Greg Clark is to take away the emphasis on sectors and to focus on problems what are the big problems afflicting British society and especially perhaps choosing those that have some sort of societal value that citizens care about but transforming them into problems that require investment across many different sectors going to the moon require 12 different sectors 400 homework problems of which 200 failed along the way everything in your iPhone kind of happened right so internet GPS touchscreen even Siri in some ways traces its initial funding to that era so what are the problems that we could actually use to guide fiscal policy investment policy and industrial strategy this constant ideological backlash that that means picking winners and so at best government should just kind of redistribute income or just get the tax policy right and then get the hell out of the way would not have gotten us any of the technologies inside your iPhone Verena thank you number three and then there's a couple of younger people down here Brett number three yeah hi Maxwell rugby of City of London school this question isn't directed or isn't just directed at Mervyn King but you seem to be an advocate believer of the cooperation of the global economy where do countries like the US and China begin in fixing the situation that they're in with us Oh in China so much money okay so have that move in and then down here yeah what do you think is the future of the banking system especially after post briggsie and Trump's America and now that there is an increasing PE now there is increasing amount of people with disposable income there there is less need to borrow so could that lead to a bigger recession or crisis or will the banking system find its ground and be stable and you also said that there could be that executives should have a mission led approach and in theory this may sound good but in practice this may not work as well and be as effective okay so Mervyn china-us and the dynamic between that and we I didn't quite understand that he said no even have been a backer for the global sort of corporate economy I was cooperation cooperation so cooperation so I thought cooperation the if you look at the world economy today there are two countries or groups which have large surpluses China and the European monetary union that the euro is the biggest contributor to surpluses today and there are two countries with big deficits the US and the UK if you had those four countries in a room and said look if we go on like this we'll have another crisis of some kind rather than debate endlessly what the crisis will look like why don't we do something to stop it happening by trying gradually to eliminate these surfaces and deficits there is a basis for a deal and it takes you four people in one room to come to an agreement on the timetable over which they might be able to achieve it and I think that's worth trying and I think the IMF should play roll of behind-the-scenes the person provided the advice and the help and so on very briefly on banking I do think we should put in place some measures an ex ante framework which everyone buys into so that we say if there's another crisis then the central bank will be on hand to lend money to banks but only because banks have been made to pay an insurance premium in advance in all the good years in order to be entitled to the borrowing and a crisis so the word bailout would disappear it would be well the banks have been paying for this for years and years now they're entitled to borrow the political problem comes if you don't actually charge banks for this and the good years you can't blame people for being upset when the banks get a free ride in the crisis even though when the crisis comes it's the right thing to do and since it is the right thing to do which is to lend money to the banks in a crisis the right thing to do is not to pretend that we'll never lend to them but actually to create a framework that everyone buys into and this is where the u.s. is going badly wrong because Congress is trying to stop the Fed from lending to banks in a crisis actually what they need to do is to say we know they're going to do it so what's the price the banks will pay in in every good year what's the how active thought on the gentleman's question here how active should government's be this notion of mission led approach Mariana's idea that innovation comes from proactive to state action and well I can I think is in something without being without being rude they are active and the question is just what are they active in and what are they doing and where and when they're inactive in certain areas that's usually an active choice in of itself I think I only I mean Marianas talking about getting innovation going and the role of the state and encouraging and doing some of that research of the private sector can then take up and run with it it's just stepping back from that to my worry is more that the British state has become inactive in the face of a whole host of structural challenges to who our economy works for and how we deal with it and that does not require particularly complicated economics it does not require particularly big theories of how the world works it is required we have chosen a society not to build any social housing in large numbers since the 1980s such as a choice now it's not cheap it's not easy they were upside there are downsides but we have made that decision we can reverse that tomorrow ok two final very brief points number two I think was there sorry yes number two while we've been speaking tonight the US stock market has been down more than five point eight percent in the lowest for since September 2008 so what's going on okay BBC doesn't give in there's one more over this direction was not here just a quick question for Mervyn Kings he said after the brexit vote that you ultimately very strongly critical of the Treasury forecast and you said they were really over the top nothing we didn't actually know what was going to really happen but kind of more recently that's kind of quite a topical issue now in the wake of the criticism of the latest reverie forecast by Cronin Backstairs so just wondering what your views on those latest forecasts were like how that's kind of getting compared to your original criticisms in the first place excellent okay so let's go through very briefly we were that is now 8:30 sadly Mariana stock markets are are they correcting themselves finally understanding that they've just been too frothy well today I read an article in the FT that was actually saying that the reason they're flopping is to worry about inflation from the rise in real wages which just kind of highlights how messed up things are so if real wages are finally rising in the u.s. in theory that would be good news not bad news and the fact that we then just look at the stock market as the sort of thermometer down the throat of the economy to say the scooters that bad versus how can we restructure the economy to be less again driven by shareholder returns which of course the stock market is reflecting you know it's the big question can I just say one thing about missions yes which is briefly the point is not government or not government as I've already said you know Google's algorithm came from a government investment Elon Musk five billion of government investment in to basically everything he did that's not the problem that's kind of an old story the question is what do we want create do we want a greener economy do we want a AI how do we get public and private partnerships that are more symbiotic a mutualistic and less parasitic and if we keep going back to this is it the state is that the market unfortunately we're not gonna get a new conversation so especially these wonderful young people here change the conversation Torsten is this the start of the massive equities correction are we gonna go because I'm not no idea let's hope not I mean then obviously the u.s. the US stock market in particular over the last year all stock markets around the world have had with the exception of the UK had a pretty strong yeah so 6% is only undoing an element of that they'll be slightly surprised if it's still 6% by tomorrow night but we shall find out a Mervin quick line on the stock markets but I think more people in here may be more interested in your views of forecasts and conditional analyses if we're going to be more precise about the recent Treasury paper on that issue but any stock markets and then our forecasts rubbish if we were on the BBC camera your producer would have cut you off two minutes you would have actually and I thought I should be brief one as I said earlier this evening when interest rates start to rise asset prices will fall back relative to incomes well that was a pretty good prediction because they obviously have been rising falling back relatively we need your wall three well obviously someone was tweeting to Wall Street one of the problems in the referendum campaign was that and to many economists fell into this trap in my view they pretended that they actually could put forward precise quantitative figures and have credibility economists are very good at framing arguments so the arguments that economists framed about the possible consequences of briggsie that would have been a useful contribution but when people said every family will be 4,300 pounds worse off that was very foolish because any non economist would say I don't understand the economics of this but I'm absolutely sure that they cannot post we know that everyone's going to be 4,300 pounds worse off and they're trying to con me and I'm afraid that was a rational response to the claims and I think this use of precise figures is is dangerous and if you go too far down that road you end up making the numbers up so I think we should be pretty cautious about precise figures and numbers thank you so much it is 833 thank you so much for your patience thank you to total squared thank you for turning Marvin and Mariana thank you for coming




Comments
  1. Not one word on the tens of millions of case of fraud with no jail.
    Bankers that crashed everything got trillions .

  2. As we look at our past and all of the freedom lost. Why and how was it so easy. I would like to believe our father's fathers wanted the best for us future generations!! ((Mother's​ mothers, Their's Their ,)) We all have the right to vote ?? What percentage of the voting population should Vote??As we look at 
    When a majority of the population (poor, middle class) are not willing, uninformed, misinformed have not a clue who or what they are actually voting for!!!
    Did you see them on TV or hear them on the radio??? WHO PAID FOR THE ADD AND WHY??
    Did they offer a hot dog and a lemonade for your vote?? Was it Shade of Skin, Gender, Free Phone, Jobs or maybe Healthcare???
    Should people vote for me just because I am a Christian??
    How many PROMISES HAVE BEEN KEPT??
    Do Politicians Seek Informed voters?? Of course not!! Do you really know who or what you are voting for??
    They can make you think you are Free!! When you are bond with the heaviest chains that will bind you through generations!!
    But you got the free phone!!!
    Add a comment../or/ Just don't care?

  3. who took their kids along to this? instead of a visit to the Nat.Hist.Museum or the top of the Wheel

  4. Here you go. The 'Yankee Problem' has been fully brit-splained in all their pedantic pomposity. Do not pass go. We're all full up on crazy here.

    Technology is NOT the 'magic bullet' insomuch of itself in a tangible sense. The 'trust' or 'faith' superficially and intangibly attached to a new technology or conceptual innovation is the true vehicle for bubbles…we've seen this with technologically entangled ventures such as Theranos, BitCoin, BlockChains, 'Quantum Computing'…all of which ultimately are failures or rapidly heading down to a black hole. But the point is that they all enjoyed a period of thriving success as long as their founders could maintain the outward appearance of proficiency and effectiveness.

    The only solution is to instill and enforce anti-corruption rulesets for CEOs and Politicians. And how do they self-police themselves to protect the working classes (us) from them? Who is going to police the people that build the policies?

  5. By far one of the best public conversations on economics in a very long time. Mariana’s emphasis on the failure of public ideas is key. We’re stuck in worn, tired dichotomies of the public vs private, for example, when we need to frame our political economic concerns in terms of the socio-economic problems we face domestically and globally. Much might be said about what keeps us locked in thread bare dichotomies (fear of scarcity / winner take all responses). Better to ask how we might redirect our politics toward, say, green technologies, affordable housing, public infrastructure / transportation investments than to rail on about the failures of capitalism or the vices of socialism. No need to rehearse these 19th C debates. Time to address and solve the political-economic problems we face. Political change, new vantage points on public issues and international multilateral cooperation are very much in need. Time to get to work. There is much to do. Whining is such as waste of time.

  6. Mervyn King: "The problem in the Euro area is not that they had austerity as such". How can this guy justify austerity? Austerity when incomes are falling and unemployment is going up while at the same time giving countless billions to the banks was sheer lunacy. King doesn't have a clue.

  7. Why the experts don't realize what effect this event had on ordinary people. Ordinary people are voters. Ordinary people are consumers. For the love of god – stay in the EU.

  8. stop blaming the sub-prime mortgages for the crisis. how a $1.3 trillion mortgage debt turned into a Quadtrillion toxic waste,(CDO,MBS,CDS,naked …..)poor people did that???

  9. only the lady know what the HELL is happening, 95% of derivatives served no social, economic value, but is the financial weapon of destruction….

  10. with respect to Sir Mervin King, "recapital the Banks" to gamble at the $600 trillions criminal derivative casino, so u lead the "collusion" of central banks. stupid is the derivatives, the top 0.01% looting the bottom 99%, still happening now………

  11. Time governments treated banks like the insatiably parasitic false idols they are rather than sacred cows!!

  12. The Plutocrats and the Oligarchs are blinded by their greed. Even though they know the pitchforks will eventually come for them, unless they highly regulate capitalism, they would rather indulge in avarice of wealth and power than change the system that is breeding grotesque inequality.

  13. Capitalism the system where the poor get poorer and the rich get richer. 0.01% of the population own 90% of the wealth and increasing. . . Yay capitalism!

  14. Separate the Main Street banks from Investment banks. Banksters should not be allowed to gamble with our savings at a 1: 35 ratio.

  15. Automation isn't really taking the jobs? That's all I needed to hear. If you're going to lie to back your claim then YOU ARE WRONG ON ALL COUNTS and therefore negated.

  16. Mariana is smart, she explained herself very well and was spot on about everything she talked about. Capital gains tax needs reform, businesses need incentives to re-invest in the capital as opposed to their own stock prices, the financial system needs to be restructured, and governments should be subsidizing sectors of industry that address society's greatest concerns. I also agree with what Mervyn said about needing global cooperation on the regulation and taxation of industry. The key to getting this stuff done starts at the voting booth guys. Consider especially the words of Mariana and do your research before going to the polls.

  17. Wage stagnation is due to the Free Market. In Economics books, Capitalism is supposed to never allow wages to stagnate. In reality, Capitalism facilitates wage stagnation. I'm saying this because, stop letting Capitalists tell you that the textbook description of Capitalism is how it actually is, and not Capitalism's real world actuation. It's the most ignorant thing on earth. No scientist anywhere says "reality must be wrong because the results of the experiment didn't match my predictions and hypotheses". Scientists say "shit, I must be wrong because my predictions and hypotheses didn't match the results of the experiment in reality". Lol. Capitalist says: "I predict fire is cold" (gets burned by fire). Capitalist responds: "fire must be wrong, it's supposed to be cold".

  18. This is like listening to cancer and its opinions on a cure — and its answer, of course, we should just learn to live with cancer.

  19. https://www.youtube.com/watch?v=2gK3s5j7PgA
    The real world is much more terrifying Kemal. You guys really don't want to know, just chat the time away. Income squeeze is a tip of the iceberg. Hence we have Brexit

  20. The only explanation for what occurred in 2007-08 is unfettered greed which was heavily promoted by lack of regulation of so called innovative economic instruments I.e. Derivatives. The majority of the blame lies squarely with Greenspan, Paulson, Summers and a few others.

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