Andrew Sheng on Fixing Financial Crises -- Lessons from the Asian and Global Financial Crises

About the Speaker: Andrew Sheng is Chief Adviser to the China Banking Regulatory Commission and President of the Fung Global Institute, a new think tank dedicated to offering Asian perspectives on global issues. Sheng is a former chairman of the Hong Kong Securities and Futures Commission and has previously held senior positions at the World Bank, the Financial Stability Forum, the Hong Kong Monetary Authority and in the private sector. He has published widely on monetary, economic and financial issues and is a regular contributor to leading journals and newspapers in China and the Asian region. His latest book is titled From Asian to Global Financial Crisis: an Asian Regulator's View of Unfettered Finance in the 1990s and 2000s. About the Event: A vastly experienced central banker and financial regulator, Sheng is also renowned as an incisive and forthright critic of the current financial system. In his most recent book he examined how market fundamentalism, loose monetary policy, lax supervision, greed, cronyism and financial engineering caused both the Asian crisis of the late 1990s and the global financial crisis of 2008-2009. More recently, he has spoken of how a sustainable system requires that we first 'cage the Godzillas' of large, complex financial institutions. At this event, he offered a detailed analysis of the global financial crisis, drawing on his experience in Asia in the 1990s and since 2000. He emphasised that ultimately all financial crises are crises of governance, and that in recent years the state has lost the ability to to regulate financial markets without massive moral hazard. Global finance has become thoroughly interconnected, interactive and reflexive. We therefore find ourselves in a systemic crisis but we are trying to tackle complex 21st century problems using simple 20th century tools. Resolving a crisis on this scale requires system-wide diagnosis, damage control, loss allocation, and the changing of incentives. We are still in the painful phase of allocating losses but we must not lose focus on the crucial task of changing incentives so as to discourage a repeat of the crisis. But even the global financial crisis cannot be looked at in isolation. In fact what we are faced with are two simultaneous crises with one common origin -- the overconsumption of global resources financed by over-leverage, particularly in the advanced countries. The short-term crisis is financial (a crisis of fiat money). The medium to long-term crisis is ecological (and will result in environmental degradation and global warming).