Hans Hoogervorst (AFM) speaks at Chamber Luncheon

Hans Hoogervorst (photo: René de Gilde)

May 19, 2010 - During the luncheon following the AGM, Hans Hoogervorst, Director of the Netherlands Authority for the Financial Markets (AFM) addressed the Chamber on the background and present developments in the financial crisis. The AFM has been responsible for supervising the operation of the financial markets since 2002. This means that AFM supervises the conduct of the entire financial market sector: savings, investment, insurance and loans. By supervising the conduct of the financial markets, AFM aims to make a contribution to the efficient operation of these markets. The AFM is roughly equivalent to the Securities and Exchange Commission (SEC) - the American financial watchdog.
 

While not saying "I told you so!",  Hoogervorst couldn't resist recalling his days as a parliamentarian when his party (the VVD) tried to block Italy in participating in the euro. The effort failed and Italy was included among the first group (11 countries) to adopt the euro as official currency. Once Italy was in the group then it was difficult to keep out other financially weak-kneed governments and their countries from joining (like Greece). Consolation was taken by inclusion of a couple of stern resolutions in the Maastricht treaty which established the euro, including a no bailout clause and a ban on the purchasing of government debt by the European Central Bank.
 

As we now know, these resolutions were not worth the paper they were first drafted on. When push turned to shove in the efforts to spare Greece and the euro from sinking into the Mediterranean Sea, these noble resolutions were put aside. In a no-holds barred effort to redeem the monetary union, relief packages worth hundreds of billions are being cobbled together to potentially support the garlic belt countries and the euro.  The ECB is now buying up government debt with a junk rating. The markets were underwhelmed and have reacted accordingly. The eventual outcome is anyone's guess. That lessons are being learned, and measures eventually taken not to leave important financial market decisions to politicians, may be the best outcome of the mess the Euro zone now finds itself in.
 

That said, Hoogervorst further gave a succinct analysis of the financial crisis as it developed over the past couple of years. All the players are to blame - the bankers, the regulating agencies, governments on both sides of the pond. We could have seen it coming but we didn't recognize the symptoms.  A whole gamut of financial creations and dumb policies were mentioned: liar loans, too loose monetary policies in the US-EU-Japan, over enthusiastic homeowner encouragement, no supervision of credit default swaps and other derivatives, deterioration of lending quality, expensive wars financed by tax cuts instead of the selling of war bonds, insufficient capital requirements on financial institutions, credit agencies that let their ratings be influenced by their clients, et cetera et ad nauseam. 
 

So where are we now? And how long will it take before things are back to normal?  Well, the humongous budget deficits of many developed countries are now the big problem. A huge effort is needed to fix this and this effort will affect future economic growth and purchasing powers of all countries involved. In other words, this is going to hurt - and it's going to hurt big time. The choice seems to be long and prolonged hurt, or short, intenser hurt. And it will take a decade or more to resolve if past experience is our guide.  On the upside, the problems seem to have been well analyzed and reforms will be implemented - hopefully effectively.
 

We have no choice but to bite this bullet and hope for the best.