The ‘Credit Crunch’ Explained

Ever wondered, “How did it get so bad so quickly?”  How did the cleverest financiers get us into this credit crunch?  Who should we flog publicly I hear you cry?  How could we create a $457 trillion global derivatives market leveraged on global Gross Domestic Product (the total market value of all goods and services produced in a calendar year) believed to be worth only $67 trillion?  Easy; greed, ignorance and lack of understanding of very different ‘generational values.’

It’s all down to values. The bank bosses didn’t understand the bank managers, the managers didn’t understand those who created and traded the uber-complex financial products that had previously made the banks billions in profits.  But hey, if it makes money why rock the boat, for many bankers looking for long-term job security they never dreamt of making so much money, and all under the cloak of respectability.

Like a lot of life’s decisions, the paths we tread reflect our basic values, what we will and won’t do for money, our moral compass.  Whether you’re a simple financier playing roulette with the public’s money, or worse, it’s your value system that determines how far you will go before something in your head says enough’s enough.

The banking strategists, those in their 50s and 60s are the baby-boomer generation, born from 1945 onwards, had grand visions for the once boringly simple high-street banks, Big Talkers with little understanding of PhD maths and derivatives.

By contrast the generation who have managed us into the present situation have a very different set of attitudes and values. Generation Xers are the children of the Thatcher era. They are at home with globalisation and the Information Revolution.  Most worryingly, unlike the Baby Boomers, they’re not scared of failure.  What’s important to them is individualism, self-reliance and immediate gratification.

But it’s the younger generation, straight out of the very best universities on both sides of the Atlantic, who created the sophisticated financial structures which have so dramatically imploded – these “masters of the universe” – are different again.  They are Generation Y. They are the generation who have not known a world without the internet. They are highly techno-savvy but information overload has made them hugely naïve in many other ways. They are the Facebook and Bebo generation – networkers who live in a world where divorce and geographical dispersion has broken down the family, and created another raft of values. They are intelligent, self-obsessed and close-focused.

The belief systems of these three groups – the strategists, the managers and the traders – are entirely different.  They really don’t understand one another at all. And they didn’t know what each other really wanted or expected out of the complex financial architecture they created. Everybody was locked into the Nick Leeson scenario; no-one asked questions so long as everyone was making money.  We’ve been here before, but never on this cataclysmic scale.

As we suffer from the global de-leveraging of these complex financial structures, the fallout will be severe, and when we finally come through the gluttony of greed, madness and misunderstanding, we must take stock and begin to truly understand that different generations do see the world differently.  It’s not ageism.  It’s an important reality that separates all who experience different generational life events.

Duncan R Glassey
Senior Partner – Wealthflow LLP

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