In the first of this four-part Big Question, industry leaders and commentators reflect on the last ten years and discuss how the financial system has improved since the Global Financial Crisis (GFC), where more work needs to be done and what could trigger the next crisis.
Jamie Carter, chairman of the New City Initiative and CEO of Oldfield Partners
This comes down to alignment of interest. There has been plenty of change within the finance industry since Lehmans, particularly as a result of increased regulation.
This has certainly addressed some of the key lessons learned around accounting, risk control, governance, capital requirements and accountability of senior management, which should offer some protection from a repeat of the crisis.
However, regulation alone is not enough. The finance industry still suffers from an agency problem - those dispensing advice, selling products or making decisions on behalf of customers, are not always aligned with them. Unless industry participants have skin in the game, their interests will not be fully aligned.
A banker required to put some of their own capital at risk in each loan made or transaction financed, or an asset management firm owned and managed by principals who are heavily co-invested in the funds alongside their clients, have a different culture and approach to risk, and greater alignment of interests.
As legendary investor Charlie Munger once said: "Show me the incentive and I will show you the outcome."
David Coombs, head of multi-asset investments at Rathbones
Firstly, quantitative easing is a successful monetary tool. Indeed, we would argue it was the most successful instrument in managing the GFC and would be again.
The coordinated response across the G7 potentially averted a depression. Some may argue the asset price inflation and subsequent wealth chasm meant QE failed, but the impact of the crisis would have been much greater without it.
Secondly, we are in the midst of a currency crisis in Turkey, but markets are now more sophisticated about how they consider local versus systemic risk. This is evidenced by the fact that selling is not indiscriminate at this stage, which is a positive.
It is also evident from President Trump's machinations that we need to re-learn that free trade is a better option than protectionism. Protectionist measures might work in the short term, but ultimately they damage growth and wealth.
Finally, we would not have considered liquidity risk as the biggest risk factor pre-Lehmans - that event was a big reminder that it can be the most significant contributor to a permanent loss of capital and, ironically, elevated volatility.
Mark Boucher, head of UK equities at Smith & Williamson
One lesson that has been learnt is that there is a limit to what monetary policy can achieve in response to a global economic crisis.
Since 2008, monetary policy has been super accommodative, which helped to support asset prices but failed to address more fundamental economic ills - such as low productivity rates and very poor wage growth.
The failure of policymakers to deal with those challenges has facilitated the rise of Trump, Brexit and populism in general - outcomes that few, if any, strategists would have predicted a decade ago.
In terms of lessons that have not been learnt, we believe too many investors bet on binary macroeconomic outcomes or take exposure to factor risks such as currencies, commodities or bond yields without thinking what could happen to their portfolio if they are on the wrong side of the trade.
We think it makes more sense to monetise smaller but uncorrelated opportunities and not take heroic macro views.
The next crisis will most likely be from a completely unexpected source - 'black swan' events are the things that really unsettle markets.
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26 years in financial services
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