The lessons learnt from the 2008 financial collapse, would be ask follows :-
a) The subprime mortgage market should not have been allowed to develop so rapidly, offering jumbo loans to people who could not afford to service such debt, and the loan-to-value should not have been so great, and the deposits so small, putting the banks at risk after issuing the mortgages.
b) The derivatives trading rules should have had stringent supervision. As it was, derivatives were being traded like ink on paper, with no regard to the underlying securities. It later came out that there were many more sellers than there were counterparties, in other words, these were naked puts. A few traders became millionaires and billionaires, but whole economies went belly up, with housing becoming toxic assets.
c) Where the economic environment called for lowering of interest rates, this should have been implemented swiftly. As it was, the U.S. and European Central Banks started to cut the interest rates down almost unwillingly; but at least when it became apparent that this was a cause of the global economic slowdown, the rate-cutting started in earnest.
d) Banking institutions should not have been using clients savings to gamble on the markets. It was okay and not apparent when they pulled off the gambles, but could not be anything but glaringly obvious when the gambles failed. For every transaction there is a winner and a loser, and the broker takes his cut.
e) Directors and managers of organisations like Lehmann Brothers should never have had exit strategies where they got a golden parachute and the clients went to hell. That principle of business operation should be morally defunct.
Even today, similar forces and practices are at work, but hopefully ever more stringent regulation of the markets as well as new legislation will help safeguard the future. The sooner such measures are enshrined in law, the better.
Do you feel optimistic or pessimistic about future growth prospects? If archaic conservative practices and tawdry economic policies are abandoned and instead a more rational economic application of resources and harvesting thereof is used, hope springs eternal that there is tremendous growth potential throughout the world, especially in India, and definitely in China. So too in all the emerging markets, including notably Africa.
Let me know your views.