2008 Financial Crisis To Cost $15 Trillion In Losses: Ex-S&P Credit Chief
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The 2008 Financial Crisis will cost an estimated $15 trillion in losses to the global economy through to 2018, said Standard & Poor’s former chief credit officer Mark Adelson to the Wall Street Journal on Monday, who also blamed high leverage and strong risk appetites among the major financial firms as the “immediate causes of the crisis”.
The 2008 Financial Crisis will cost an estimated $15 trillion in losses to the global economy through to 2018, said Standard & Poor’s former chief credit officer Mark Adelson to the Wall Street Journal on Monday, who also blamed high leverage and strong risk appetites among the major financial firms as the “immediate causes of the crisis”.
Adelson, who is now working as an independent consultant, said that past estimates of the fallout from the financial crisis – typically placed at around $750 billion to $2 trillion – may have been inaccurate; as they only took into account losses from the U.S. residential mortgage loans – without factoring the drop in value of world stock markets and the plunge in U.S. economic output.
Since leaving the credit rating agency in late 2011 amid a management shakeup, Adelson has been busy preparing a paper looking into the deeper causes of the financial crisis; claiming that the subprime mortgage crisis alone could not explain the near-failure of the U.S. financial system.
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“I think people have been looking at it wrong and trying to explain it only with mortgages,” Adelson told WSJ.
“The causes run back to older things that took longer to build up, including deregulation, spread of the risk-taking culture and the conversion of investment banks from partnerships to corporations,” he said.
[quote]“All together, they produced this kind of inevitability,” Adelson added.[/quote]Adelson’s paper, entitled “The Deeper Causes of the Financial Crisis–Mortgages Alone Cannot Explain It”, cites excessive debt and increased risk-appetite among financial firms as the key causes of the financial crisis.
He also proposes at least five deeper causes to the crisis including: securities firms converting from partnerships to corporations, the 30-year trend of deregulation, the quant movement, the spread of risk-taking culture through the financial industry, and globalization.
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When asked if the financial crisis could have been preventable, or at least manageable, Adelson said, “the financial firms’ [risk-taking] behaviours did not simply come out of the blue.”
Prior to joining S&P, Adelson had been a vocal critic of rating agencies’ trend toward laxity. Adelson’s term at the company though has been fairly controversial, reported WSJ, most notably after he pushed for more conservative ratings when he first joined S&P ahead of the financial crisis – rattling markets in the process – and when he made changes to sovereign debt ratings in June 2011, which preceded S&P’s downgrade of U.S. debt.
Click here to read Adelson’s full paper.
