Cambridge University Education Without Borders (CUEWB) successfully held its inaugural local project, ‘Talk on Surviving the Financial Crisis’ (TSFC), in Gonville & Caius College’s Bateman Auditorium from 7-9.30pm on 2 December 2008. More than 70 members of the University turned up for the Talk and were engaged in an enlightening evening with Prof. M. Hashem Pesaran FBA, Professor of Economics and Director of the Centre for International Macroeconomics and Finance, and Mr. Rupert Taylor, Vice President, European Equity Sales, Nomura International plc.
In his 30-minute talk, Prof. Pesaran presented fresh insights on the financial crisis, giving an academia perspective. He spoke on several proximal causes of the crisis that included the increased inter-country dependencies through the opening up of financial and capital markets and prolonged periods of low interest rates and credit expansion. The overreaction to the dot-com bubble burst was suggested by him to be one of the attributing factors of the financial crisis. The effects on housing prices were evident in several countries such as the United States, United Kingdom, Spain and Ireland. Long term and short term interest rates fell in the aftermath of the dot-com and 911 era, resulting in strong incentive to borrow short and lend long, particularly in the housing market. Volatilities could be observed across all markets. Returns on equities have increased from around 1-1.4% to 6-7%. Volatilities of major currencies have increased from 0.6% to almost 2% on a daily basis.
Prof. Pesaran concluded his speech by raising measures, which the government, individual and academia could undertake to tackle the financial crisis. He urged that at times of increased uncertainties, the government should act swiftly to stabilise the financial markets, reduce volatilities, and concurrently re-establish confidence in markets. The government, as suggested by him, should provide social safety nets for those most adversely affected by the crisis. Governments can also, through international institutions, collaborate to resolve the crisis.
Prof. Pesaran advised individuals to take a long term view of the financial developments and diversify human and non-human capital. Also, he stressed that individuals should not attempt to time the market. Lastly, he pointed out that national economies needed to be analysed from a global perspective. He put forward that the role of quantitative finance as a tool of market analysis was likely to come under scrutiny.
Mr. Taylor, in his 30-minute talk from a business perspective, raised the concept of the multiplier effect, as one of the leading causes of the financial crisis. He compared consumer leverage in the UK with China in terms of household savings ratio (UK: <1%, China: 38%). He also mentioned that the UK was running a fiscal deficit of 42.9% whilst China, merely 0.8%. He proposed that China is still the brightest spot in the world economy, with a high savings rate providing a solid foundation for boosting domestic demand. Also, the rapid income growth and increase in the number of Chinese migrating from rural to urban cities would aid in China excelling in the global economy.
Following the lecture-style talks, the two speakers engaged the audience in a stimulating panel discussion for half an hour. Several questions on the financial crisis and various economic models raised in their speeches were posed and answered in great detail. The talks with the panel discussion were hosted by Ben Collie, Treasurer of CUEWB.
After the panel discussion, the speakers and members of the audience adjourned to an adjacent seminar room for a networking session. Prof. Pesaran continued to answer several questions on the financial crisis posed by students. Mr. Taylor, together with his colleague, Ms. Hannah Han, from Nomura, clarified questions regarding the financial position of Nomura as well as career prospects in the financial and banking sector. CUEWB Committee members were also present to interact with students who were keen on learning more about the society. Feedbacks from the students were positive and encouraging.
The Talk was kindly sponsored by Nomura International plc.
