Sherine Abdel-Razek listens in as local and foreign experts try to figure out the cause of the global crisis, and ways to temper it The terms transparency, liberalisation and deregulation have always had positive connotations when used in relation to the economy and the stock markets. However the world's worst financial crises since the Great Depression of 1929 all appear to suggest that too much of even a good thing is bad. According to Abu Hantash Abdel-Meguid, UNDP economic expert, these terms and the methods they represent are the main pillars of globalisation, and are mainly advocated by the industrialised world. It seems that their implementation has in reality only helped transfer crises between markets and economies. The end result is that developing economies take their share of the industrialised world's losses, or as economists put it, benefits are privatised and costs nationalised, Abdel-Meguid said during the Executives' Association annual conference last week. Market deregulation, absolute freedom for capital inflows and the total liberation of exchange rates have all helped change the financial world into a bottomless sphere where no one can predict the risks that lie ahead, according to Gouda Abdel-Khaleq, professor of economics at Cairo University's Faculty of Economics and Political Sciences. Addressing attendees at the same conference, Abdel-Khaleq explained that the emergence of new sophisticated investment tools like derivatives, over-the-counter deals and offshore transactions have made it possible to create liquidity and use it in speculative, and as such unregulated transactions. Speaking at the Egyptian Centre for Economic Studies, Cambridge University's Queens College President Lord John Eatwell said he agreed that the sophisticated, or more accurately complicated nature of new investment tools, is guilty for the woes we are witnessing today. During his lecture on Sunday he said regulators had failed to keep up with the rapid developments in the financial world, which made supervision difficult. It also made it tough for regulators to understand business models or accurately assess risks, leading them to merely accept that firms had the technical skills to manage better than they could. Since 1997, US regulators have required agencies to rate the statistical models they use to in turn supervise and rate the performance of investment banks. In the interest of their own success with clients, these banks expectedly made the best use of this loophole by camouflaging their risks. "This is a bad form of transparency," said Eatwell. The economist, meanwhile, offered a totally new explanation of the crisis, as he put the blame on the homogeneity of the market. "This homogeneity means that all market participants have the same targets and plans, so we don't have a buyer on one side and a seller on the other. We are all after the same objective and use the same exit at the same time," said Eatwell. It appears the reason why is that companies are growing rapidly into conglomerates, with different arms involved in investment banking, brokerage, asset management, private equity and other sectors, said Eatwell. "All those divisions are managed by graduates of the same schools, have access to the same data and use the same statistical methods to analyse it. Institutions have become more alike and they take the same steps in extreme events, make the same mistakes at the same time, and thus exacerbate the problems as never before," he added. Speaking a day after Eatwell, head of risk management at the Arab African International Bank Arthur Koops gave a presentation on the fringes of a Euromoney conference, providing in a nutshell guidelines to avoid the recurrence of the crisis. He advised banks not to concentrate on sectors where prices only go up, as this is an indication that a bubble is forming and that it will soon burst. He also called for a cautious lending strategy with banks making sure that "investors have skin in the game", and that they are therefore involved in risk-taking while avoiding excessive leverage.
