Table Of ContentDilemma:
How
do
we
make
our
banks
serve
the
common
good
without
endangering
our
prosperity?
th
13
June,
2013
Report
on
UK
Microfinance
«Organization»
Agenda:
TIMETABLE
(June)
Monday
3rd
9.30-‐11am:
Plenary
(Streatham
A):
9.30am
Richard
Seaford
and
Gary
Abrahams,
Introduction
10am
Richard
Seaford,
'Money'
10.30am
John
Maloney,
'How
is
money
created?'
11.30-‐1pm:
Registration
and
meetings
of
sub-‐groups.
2-‐3.15pm:
Guest
lecture:
John
Sutherland.
3.30pm
Discussion
by
sub-‐groups?
Tuesday
4th
9.30-‐11am:
Plenary
(Streatham
A)
10am
Charlie
Masquelier,
'The
Contradictions
of
Capitalism'
10.30am
Annie
Pye,
'Corporate
Directing
-‐
the
people
side
of
governance'.
11.30-‐1pm:
Meetings
of
subgroups.
2-‐3.15pm
Guest
lecture:
Gary
Abrahams
(Streatham
A)
on
securitisation
3.30pm
Discussion
by
sub-‐groups
Wednesday
5th
-‐
9.30am-‐1pm:
Research
and
Discussion
by
sub-‐groups
-‐
2-‐3.15pm
Guest
lecture:
John
Bone
(Streatham
A)
'Debt
Wars:
Financialisation,
The
Credit
Crisis
and
its
Social
Implications’,
.
-‐
3.30pm
Discussion
by
sub-‐groups
Thursday
6th
-‐
9.30am-‐1pm:
Research
and
Discussion
by
sub-‐groups
-‐
2-‐3.15pm
Guest
lecture:
Adrian
Ball
(Streatham
A)
on
The
role
that
building
societies
play
and
can
play
in
the
future
of
banking..
-‐
3.30pm
Discussion
by
sub-‐groups
Friday
7th
-‐
9.30am-‐1pm:
Research
and
Discussion
by
sub-‐groups
-‐
2-‐5pm:
Guest
debate:
David
Sismey
(Goldman
Sachs)
)
on
why
banks
like
Goldman
Sachs
already
work
in
the
best
interests
of
society,
countered
by
Christina
Laskaridis
(Corporate
Watch).
(Streatham
A)
Name of report 2
«Organization»
Weekend:
Festival
Monday
10th
-‐
9.30am-‐1pm:
Research
and
Discussion
by
sub-‐groups
-‐
2-‐3.15pm
Guest
lecture:
Tim
Congdon,
'Do
Banks
help
or
Hinder
Capitalist
Economies'
(Streatham
A).
-‐
3.30pm
Discussion
by
sub-‐groups
Tuesday
11th
-‐
9.30am-‐1pm:
Research
and
Discussion
by
sub-‐groups
-‐
2-‐5pm:
Research
and
Discussion
by
sub-‐groups
Wednesday
12th
9.30-‐1pm
Finalisation
of
output
by
sub-‐groups
2-‐5pm:
Plenary
(Streatham
A):
Production
of
Final
statement
(1)
Thursday
13th
9.30-‐1pm:
Plenary
(Streatham
A).
Production
of
final
statement
(2).
2pm.
Forum
ceremony.
Friday
14th
2pm
Session
with
Ben
Bradshaw
MP
(Streatham
A)
THEMES
FOR
SUB-‐GROUPS
1)
How
did
the
crisis
occur,
CHARLIE,
facilitator
Heng
Yong
2)
Contradictions
of
capitalism,
CHARLIE,
facilitator
Chris
Calvert
3)
How
much
of
what
banks
do
has
social
value,
RICHARD,
facilitator
Lawrence
Choo
4)
How
do
we
incentivise
the
banks,
GARY,
facilitator
Minjuan
Gao.
5)
Socially
responsible
banking
and
building
societies,
GARY,
facilitator
Jess
Groling
6)
Banks
and
micro
finance,
GARY,
facilitator
Tom
White
7)
Business
ethics,
GARY
facilitator
Bai
Yuting
8)
Spreading
financial
literacy,
GARY,
facilitator
Keren
Asente.
9)
Model
of
regulation,
JOHN,
facilitator
Sam
Adebiyi.
FINAL
PLENARIES
-‐
Producing
a
final
statement
(with
or
without
minority
report).
-‐
Educating
our
politicians
and
holding
them
responsible.
Name of report 3
«Organization»
Table
Of
Contents:
1. The
Causes
of
Financial
Crisis
of
2007-‐08
2. Importance
of
Greater
Financial
Literacy
3. Socially
responsible
banking:
local
banks
and
building
societies
4. How
Much
of
What
Bankers
do
have
Social
Value?
5. Report
on
UK
Social
Finance
6. Report
on
UK
Microfinance
7. Capitalism:
Systemic
Problems
that
Endanger
it’s
Sustainability
8. How
can
the
interests
of
bankers
and
society
be
aligned
via
changes
to
the
incentive
system
within
the
banking
structure?
9. Business
Ethics
10. Improving
our
Model
of
Regulation
11. Plenary
Notes
Name of report 4
«Organization»
The
Causes
of
Financial
Crisis
of
2007-‐
08
To:
The
Vice
Chancellor
of
the
University
of
Exeter
Presented
by:
Agarwal,
Manya
Cowen,
Lucy
Marion
Daniels,
Emma
Jane
Ferrer,
Alexandrea
Gloyne,
Christopher
Martin
Hunter,
Louise
Rachel
Li,
Xuan
Roberts,
Joshua
Smith,
Nicola
Jane
Charlotte
Verspyck,
Natasha
McMillan,
Christian
Mak,
Kayla
INTRODUCTION
The
causes
of
the
financial
crisis
have
been
concentrated
in
various
specific
areas,
with
political
figures
often
focussing
on
bankers
and
the
greed
of
financial
institutions.
However,
from
an
unbiased
and
holistic
standpoint,
the
true
cause
is
Name of report 5
«Organization»
in
fact
impossible
to
pinpoint,
but
rather
is
the
intersection
and
sum
of
complexity
of
the
modern
financial
industry
and
underestimation
of
risk
which
occurred
between
2001
and
2008,
ineffective
and
rather
poorly
thought
out
government
policy,
inappropriate,
exploitable
and
narrowly
focussed
regulatory
policy,
narrowly
focussed
monetary
policy
and
a
swath
of
social
factors
which
all
contributed
to
the
build
up
in
late
2008.
Name of report 6
«Organization»
Section
1
–
Investment
Banks
Borrowers
with
relatively
low
credit
risk
are
known
as
prime
borrowers
whereas
high
credit
risk
individuals
with
no
income
or
jobs
were
known
as
subprime
borrowers
(Mankiw
and
Taylor,
2011).
A
critical
reason
why
subprime
credit
expanded
was
that
there
were
significant
hot
money
inflows
into
the
US
in
a
global
reach
for
yield
simultaneously
caused
and
financed
by
low
interest
rates
principally
in
response
to
the
Greenspan
put.
This
led
to
a
housing
boom
where
US
homeownership
increased
from
64%
in
1994
to
69.2%
in
2004,
despite
a
124%
house
price
appreciation
between
1997
and
2006
(Buckley,
2011).
This
unsustainable
gain
in
prices
which
theoretically
backstopped
subprime
borrowers,
as
credit
remained
easy
and
demand
for
yield-‐rich
securities
continued
to
remain
strong.
Asset
backed
securities
(ABS)
are
a
debt
security
collateralised
by
a
pool
of
assets,
such
as
mortgages,
credit
card
debt,
corporate
debt
or
car
loans
(Buckley,
2011).
Collateralised
Debt
Obligations
(CDO)
are
an
example
of
an
ABS
which
is
usually
split
into
tranches
with
different
levels
or
riskiness
determining
rights
in
terms
of
interest,
receipt
and
redemption.
The
result
of
dividing
these
tranches
was
greater
risk
minimisation
(Buckley,
2011).
This
process
of
pooling
mortgages
and
selling
it
on
is
known
as
securitisation
(Mankiw
and
Taylor,
2011).
CDOn
consists
of
tranches
of
many
CDOs
which
each
consist
of
tranches
of
MBS
which
in
turn
consist
of
mortgage
loans
as
shown
below.
n
CDO
CDO
The Great Pyramid of Securitisation. Exeter
University BEE1029 Economic Principles
MBS
Course Materials – Dr Jack Rogers.
Mortgage
Loans
Securitisation
explains
the
fact
that
there
are
far
fewer
deposits
in
the
modern
financial
system
than
loans.
Riskier
credit,
e.g.
subprime
mortgages,
high
yield
Name of report 7
«Organization»
loans
and
consumer
credit,
are
generally
securitised
(Friedman,
2011)
Special
purpose
vehicles
(SPV)
are
set
up
to
acquire
and
hold
assets
off
balance
sheet,
ensuring
banks
can
minimise
reserves
set
aside
to
cover
liabilities.
This
improved
the
appearance
of
their
balance
sheets
and
was
widely
used
before
and
during
the
crisis
(Buckley,
2011).
Investors
insured
against
credit
risk
in
holding
CDOs
using
Credit
Default
Swaps
(CDS)
(Bone,
2009)
or
synthetic
CDO
portfolios.
This
meant
that
one
party
would
make
a
series
of
payments
to
another
party,
which
would
pay
out
if
the
CDO
defaulted
(Buckley,
2011).
These
CDSs
were
traded
to
such
an
extent
that
they
became
far
removed
from
the
initial
loans.
Complexity
Metrics
in
MBS
and
CDO
instruments
Credit
rating
agencies
(CRA)
played
an
important
part
in
the
financial
crisis
by
what
in
hindsight
seems
a
significant
understating
of
risk
mainly
on
MBSs
and
CDOs.
The
three
main
competing
CRAs
are
Moody’s,
S&P,
and
Fitch.
In
the
five
years
preceding
the
crisis,
an
estimated
3
trillion
dollars
were
used
in
subprime
lending.
These
loans
were
believed
to
be
justified
by
certain
credit
enhancements
such
as
offering
collateral
theoretically
in
excess
of
the
issued
debt,
and
credit
default
insurance.
However
in
reality
major
CRAs
knew
about
their
misleading
ratings.
Emails
sent
before
the
crisis
in
the
US
suggests
employees
were
aware
of
the
pending
housing
crisis
but
had
no
financial
incentive
to
change
due
to
the
increase
in
revenues
and
stock
prices
that
they
were
experiencing.
The
rating
companies
Name of report 8
«Organization»
earned
as
much
as
three
times
more
for
grading
these
SCPs
than
corporate
bonds,
their
traditional
business.
US
Senate
investigations
panel
says
that
the
‘sudden
mass
of
downgrades
were
the
immediate
trigger
for
the
financial
crisis’.
In
the
first
four
quarters
from
the
crisis
nearly
2
trillion
dollars
in
downgrades
had
to
be
made.
This
led
to
major
problems,
particularly
in
the
US,
but
the
optimistic
ratings
also
created
false
confidence
elsewhere
in
the
world
so
global
investors
were
unprepared
for
the
financial
meltdown
that
ensued.
Furthermore
there
was
deemed
to
be
a
conflict
of
interest
between
CRA’s
and
commercial
banks
as
the
banks
would
pay
the
agencies
for
their
rating
services.
Figure
3
US
Home
Foreclosures
2005-‐2013
(Bloomberg
LP)
US
Seriously
Delinquent
Subprime
Loans
2001-‐2013
Name of report 9
«Organization»
In
late
2004,
the
Bank
of
England
and
the
Federal
Reserve
started
to
increase
rates
to
combat
growing
inflation
rates
(Mankiw
and
Taylor,
2011).
As
interest
rates
rose,
subprime
borrowers
began
to
experience
rising
mortgage
payments.
Consequently
the
number
of
people
defaulting
on
their
mortgages
increased
and
many
people
tried
to
sell
their
properties,
which
lead
to
a
fall
in
prices.
This
fall
in
house
prices
meant
that
when
people
sold
their
house
they
would
often
still
be
left
with
a
large
debt
due
to
negative
equity
(Mankiw
and
Taylor,
2011).
The
increasing
number
of
defaults
destroyed
the
value
of
derivative
ABSs
and
CDOs
some
of
which
were
leveraged
creating
multiplications
of
the
original
mortgage
losses.
As
there
were
fewer
mortgage
interest
payments
being
met
(Buckley,
2011).
As
the
CDO’s
started
to
default,
there
was
an
increase
in
the
number
of
CDS
claims.
The
systemically
important
financial
institution
(SIFI),
Lehman
Brothers,
were
at
the
forefront
of
the
subprime
and
CDS
market,
as
they
borrowed
heavily
to
finance
their
ABS/CDO
prop
trading
desk
(Mankiw
and
Taylor,
2011).
This
left
it
very
vulnerable
when
the
market
started
to
collapse
due
to
the
bursting
housing
bubble.
The
collapse
of
Lehman
led
to
billions
of
dollars
of
claims
on
CDS
payments
mainly
at
insurer
AIG.
Their
bonds
were
auctioned
off
to
try
and
meet
the
CDS
obligations;
however
the
sale
of
the
bonds
did
not
raise
sufficient
capital
(Mankiw
and
Taylor,
2011).
Later
in
2008,
the
US
Treasury
bailed
out
AIG
on
all
its
outstanding
obligations
including
100¢
on
the
dollar
for
its
Lehman
CDS
and
synthetic
CDO
instruments
the
principal
holders
of
which
included
investment
bank
Goldman
Sachs.
However,
due
to
the
nature
of
the
OTC
derivative
market
and
risk
exposures
across
the
global
financial
system
meant
losses
were
multiplied
and
quickly
spread
as
nodes
in
the
network
failed.
Name of report 10
Description:Jun 13, 2013 10.30am John Maloney, 'How is money created?' 2-‐3.15pm Guest lecture: Adrian Ball (Streatham A) on The role that 6) Banks and micro finance, GARY, facilitator Tom White .. understand and successfully regulate the financial markets P. (2011) Economics, Second edition, Andover
