“We have truly become a global economy.  Social media and technology have paved the way for us to conduct business overseas as easily as doing so in our hometown.  The GFC2017 Conference & Expo provides essential education and training for all global businesspeople to succeed.”  – Elinor Stutz, www.smoothsale.net

Financial Crisis 2.0: How 2009 Can Happen Again Soon


Joe El Rady, Managing Member, The El Rady Group

The next financial crisis is coming, it’s a just a matter of time, and we haven’t finished fixing the flaws in the global system that caused the last one. Incredibly, policy prescriptions and market realities after the Credit Crisis of 2007 – 2009  made  the  biggest  banks  bigger,  increasing  rather  than  decreasing  systemic risk. Although  banks  now  seem better regulated and capitalized, many of their risky activities of the late 2000’s have not disappeared, but rather shifted  to  the  opaque  and  largely  unregulated  shadow  banking  sector,  which  has  ballooned  systemic  risk  and mushroomed a mountain of derivatives speculation possibly exceeding 20 times the value of aggregate global GDP. Moreover,  the  cheap  money  created  to  rescue  the  economy  has  flooded  markets,  inflating  asset  bubbles  and encouraging  consumers,  companies,  and  governments  to  load  up  on  debt. Since  the  crisis:  household  debt  has increased  back  to  its  2007  record  of  US$14.1  trillion;  business  debt  has grown  from  US$10.1  trillion,  to  US$12.6 trillion; US Government debt has ballooned from US$9.2 trillion, to US$18.9 trillion (600 percent of total revenue); and,  the  Fed’s  balance  sheet  has  exploded  from  US  $880  billion  to  US$4.5  trillion  (a  77:1  leverage  ratio).  The median home price to income ratio is currently 4:1, vastly exceeding the average ratio of just 2:6, while the Market Cap-to-GDP  ratio  is  approximately  110%,  vastly  exceeding  its  long  term  average  of  75%,  none  of  which  seems sustainable given anemic incomes and GDP growth. Meanwhile, moves toward a sustainable recovery without the aid  of  ultralow borrowing  costs  have  failed  to materialize. Given  the  Fed’s  current  balance  sheet  and  the  federal government’s  current  levels  of  debt,  their  abilities  to  save  the  economy  this  time  around  will  prove  extremely difficult, if not impossible.

Learning Objectives:

  • Outline the causes of the 2007 – 2009 Financial Crisis, discuss developments since, and compare and contrast to current financial market realities
  • Discuss how low interest rates have encouraged risk taking and amplified risk in the global financial system
  • Learn  why  Balance  sheets  have  become  stretched  in  emerging  market  companies  and  banks  and  discuss whether and why these firms have become more susceptible to financial stress
  • Understand why neither lending volumes nor lending risks have not truly decreased (but rather only shifted)
  • Discuss whether a new Lehman Brothers type shock could spark another global panic
  • Explore  the  unaddressed  system  vulnerabilities  that  could  lead  to  a  global  asset  market  disruption  and  a sudden desiccation of market liquidity in several asset classes
  • Examine  how  and  why  Zero  Interest  Rate  Policy  has  hurt  savers,  handcuffed lending  to  small  and  midsized enterprises,  retarded  upward  mobility  in  wages,  and  expanded  the  wealth  gap  by  enriching  asset  owners  at the expense of laborers and renters
  • Discuss  whether  and  how  the  lack  of  a  real  purge  of  the  financial  system  in  2008  has  weakened  world economic activity
  • Understand how how and why, in the current environment, the risk-pricing mechanism is broken

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