Is the Financial Crisis Really Over?

By Stanley Epstein - Principal Associate, Citadel Advantage

What is the risk of another financial crisis? The dust has begun to settle. The turbulent events of the past two and a half years seem to be over and the world is looking forward to a period of renewed stability and growth. Across most of the world there are plans afoot for the reform of the banking system to “fix” it so that the dreadful events that we were witness to so recently will not happen again.


2010 – The start of the second decade of the twenty first century is seen as a symbol of hope and a brighter future.

How realistic are these hopes? Is it possible to really repair the banking and financial system? Can we avoid any future pain such as we have seen (and alas are continuing to see)?

This is all good stuff, but realistically speaking the prospects for a quick “fix” are not at all good. In fact one need look no further than to the responses of governments and financial regulators to these recent events to see that the seeds of the next financial crisis have already been sown. And this crisis may not be so far in the future either.

Consider the facts. The overall response of governments and regulators alike to the recent financial crisis has sent a totally wrong message out to the banks. This misguided response has vastly increased the possibility that the same events will repeat themselves in the not too distant future.

To make matters worse, when the next crisis occurs countries may just not be able to take the strain. The events of recent days in Iceland regarding the reimbursement of the British and Dutch governments in the “Icesave Bank” saga and the ongoing financial problems in Greece are portents that the next crisis could be much, much worse.

The single distinguishing feature of the 2007-9 crisis was the huge amounts of financial assistance that was literarily thrown at the banks. Governments across the globe went almost berserk to avoid a systemic collapse of their individual country’s banking systems.

By taking this course of action governments simply reinforced the existent cavalier attitude of the banks. The banks who benefitted the most from the support of the state were in all probability the ones who presented the most serious risks to the financial system; the banks who should most probably been allow to go to the wall.

Because governments and regulatory authorities provided such massive assistance to banks and securities firms these governments have in effect created a sort of automatic disaster insurance fund. Bank executives now know that their banks will not be allowed to go under. This is going to lead the banking industry generally to their bad pre-crisis habits; habits of taking dangerous and unjustified risks once again, in the certain knowledge that that they will not be allowed to fail. “Too-big-to-fail” was (and is) the cry and governments have been all too eager to dance to this tune.

A factor which is so conveniently ignored is that for many banks across the globe the pain is not yet over. These banks are going to continue to experience losses for some time to come. These losses could still be extensive, as foreclosures continue to mount amidst a stagnating property market and continuing high levels of unemployment.

If governments could say with any absolute conviction that they would never, ever bail out another bank again, there would be some hope of averting a future crisis. However governments are fickle, driven by the winds of political opportunism.

When the crisis returns, as it surely must, we will see a replay of what we saw before. Indeed certain recent developments at some of the banking culprits from the last round are a clear indication that some banks are back to their bad old ways with massive profits and obscene bonus payments becoming the norm once again.

Clearly any attempts by various governments to “fix” the system have been a non-starter. To be brutally blunt – it has failed! And the same unfortunately applies too, to “fixes” that are planned. If they haven’t been started on yet the chances of them ever happening are less and less likely with each day that passes.

Unless governments and regulators seriously look at the failed systems and repair them properly in a manner that avoids the current implied guarantees of support “no matter what“, we are doomed to relive the events of 2007-9 again and again and again.

New Year - Welcome 2010

Welcome 2010! On this first day of the new year and the first day of the second decade of the 21st century we take a quick look at what folk on the street in London see and hope for (courtesy of The Economist).

Training Courses for Q1 & Q2 2010

Citadel Advantage's scheduled training courses for Q1 & Q2, 2010 are now available to view or to download as a PDF for handy reference.

Citadel Advantage Course Schedule Q1 & Q2 2010

View more documents from Stanley Epstein.

Some Great Quotations

Another year is drawing to a close … The year that is passing has unlike recent years been a tumultuous year, a year of concerns and of disappointments.

Now as we pause at the brink of 2010 it is time to reflect … on our lives, our disappointments, the future ….

There are many great leaders both past, present. Are you one of them? Here are some words of wisdom to live by.

Take a quick peek at this moment of inspiration and ask yourself "Who do I respect and who can I emulate to be a better person - who is emulating me? "

Click here for GREAT QUOTES FROM GREAT LEADERS

Royal Bank of Scotland's cheque system falls because of EDS mainframe failure

The Royal Bank of Scotland's cheque clearing system fell over on the 15th December after a massive mainframe failure at HP Enterprise Services (formally EDS).

An IBM Z10 at HP Enterprise Services's site in Stockley Park, near London apparently failed because microcode fixes had not been applied. The vendor's disaster recovery plan saw processes switched to an IBM Z10 in Mitcheldean, Gloucestershire, but this machine also failed to work, according to a report in UK technical journal. “The Register”.

The problem affected several large customers, including RBS, which saw its cheque clearing system go down for at least 12 hours, causing a huge backlog, says the Register, citing "insiders".

EDS was acquired in a $13.9 billion deal last year by HP, which promptly revealed plans to axe over 24,000 jobs worldwide.

According to “The Register” the Stockley Park hardware team, who would have made the microcode fixes, have all been made redundant, with a similar problem facing the Mitcheldean site.

Banker Arrested on NZ$ 17 million Fraud Charges

Citadel Advantage’s Correspondent in New Zealand reports that an investment banker from that country’s ASB Bank has been arrested on fraud charges totaling nearly NZ$ 18 million (USD 12.8 million).

Stephen Gerard Versalko, aged 51, was arrested last Friday and appeared in the Auckland District Court to face three charges by the Serious Fraud Office after a three-month investigation.

The Serious Fraud Office alleges that as a senior investment adviser, Versalko defrauded nearly 30 wealthy ASB clients of NZ$17,763,110 over a nine year period until he was fired by the bank last August.

Defence lawyer Stuart Grieve, said that Versalko had been co-operating with the Serious Fraud Office since the alleged offending came to light in August. Mr. Grieve successfully sought for his client to be released on bail without entering a plea. Versalko is scheduled to appear in the Auckland District Court on January 26.

Mr. Grieve also asked Judge Emma Aitken to suppress the specific allegations made by the Serious Fraud Office as there was a possibility the media would report them as fact. These allegations appeared in a document that outlined how Versalko allegedly defrauded the bank customers, what he allegedly spent the money on, how he was caught and how he described himself to Serious Fraud Office investigators.

Serious Fraud Office prosecutor Patrick McCann argued for the allegations to be published, under the principle of open justice. But Judge Aitken ruled that because she had no confidence in the media to report the summary as unproven allegations, not fact, it would be suppressed.

The charges against Versalko allege that he obtained NZ$12,958,608 from 17 ASB Bank clients by conducting 68 fraudulent transactions between October 2003 and August 2009.

A second charge accuses Versalko of offering fictitious investment opportunities to obtain NZ$1,074,077 in 12 fraudulent transactions between August 2000 and September 2003.

The third charge is that Versalko obtained NZ$3,730,423 from 28 ASB clients by conducting 43 fraudulent transactions between October 2003 and April 2009.

The ASB Bank refused to comment on the charges but said customers who had lost money had been repaid. Serious Fraud Office director Adam Feeley said the alleged fraud by Versalko, if proven, would be "one of the larger employee frauds in New Zealand in recent years", and the agency had responded with a speedy and thorough investigation.

"In tough market conditions there is a legitimate public expectation that law enforcement agencies will act in a timely manner to prevent or minimize the impacts of crime on society."

Mobile payments in Kenya

The increased use of mobile phone-based money transfers to pay for goods and services is promising to really get electronic commerce going in Kenya. Read this thought provoking article by Victor Juma in AllAfrica.com.

allAfrica.com: Kenya: Mobile Money Beats Credit Cards in the Retail Market (Page 1 of 1)