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2007, 1907, 1819... have we really come that far?

When doing a little research recently I was stunned by an article from the New York Times: 

“After a year of relative stability following the revaluation of the dollar, the world money markets have again been rocked by wild and unpredictable fluctuations.” 

The stunning thing is that ELLIOTT V. BELL wrote this on March 10, 1935 in the New York Times 

If we look at the financial markets today they are unrecognisable from 100 years ago. A bowler-hated gentlemen banker from the turn of the last century would be as capable as a 36 year old, that is me, in front of the new Nintendo Wii, ok you now know what my children got from Santa. But no matter how much the systems, processes and regulations have changed there are some market fundamentals that will never change. Essentially the problems are still the same as they were 100 years ago and 100 years before that.  

While not scientific, I simply put forward that there are a few things that we will always need to contend with as participants in the financial services arena. And we can learn from these.  

Greed will always outpace regulation – I think they knew this one ages ago and muttered something about horses and barn doors. Greed gets us into trouble, regulation follows, greed finds a new way to get us into trouble. Ad infinitum.   

Change is a constant – from the gold standard to Bretton Woods to floating to pegged to the euro to the middle eastern single currency, need I go on? change will always happen. Procedures and systems will always need to change. Somehow institutions cope with these changes without major issues whilst others struggle right up to the relevant deadlines. And from a software point of view processes never thought of today will happen tomorrow so things need to be design with this in mind.  

Chaos will reign –  whilst we all like to feel that we’re living in unique times the chaos and change that previous generations of financial markets participants endured was no doubt greater. In fact we haven’t even had a decent recession in 30 years. The blips in 2000-01 and 1990-92 did not restructure the economy as did previous collapses like the Panic of 1819 and Panic of 1907.  Personally, I do not think that we have seen the last of the recent subprime issues and I continue to watch the markets with interest.  

What can we learn from all this?

I think it is safe to say that markets are very resilient and typically take these blips in their stride and do recover.  Whilst in the longer term markets have always recovered the same is not true of all participants.  We will never solve all of the problems out there but we can put policies, procedures, standards and systems in place to help safeguard. The greater threats to the markets are external to it and we probably won’t see them coming.

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