Economics expert Martin Wolf has told reporters the current Western financial system is in need of urgent and radical reform. Without it, he says, another financial crisis is inevitable.

Mr Wolf made these comments at the launch of his new book “The Shifts and he Shocks: What We’ve Learned – and Still have to Learn – From the Financial Crisis.” At the heart of the book is the fact that debt is still used to fund economic growth. In itself debt is not bad. Only when leveraged beyond the point of prudency does it make the economy fragile.

And this, says Mr Wolf, is exactly what we have failed to learn from the Global Financial Crisis.

 In fact, things are arguably more precarious now than they were prior to the GFC; as there are fewer lending institutions to absorb the impact of the failure of one or two institutions.

Martin Wolf. Photo:

Martin Wolf. Photo:

This, he cautions does make them “too big to fail.” Meaning they are less likely to face the consequences of their actions and will have their losses absorbed by the taxpayer.

Regulators, he says, have still not caught up with lending institutions. The regulatory reforms as they currently stand are ineffectual and incredibly complex.

Banks and other institutions are well aware of the difference between having a law and the will to prosecute it. And they are prepared to simply ignore regulations they know will be costly or impossible to bring to trial.

It’s a game to the lenders. They’re in the business of outmanoeuvring the regulators. And they are incentivized to do so with huge profits and failures that will be borne by others and not themselves.

The world still depends on borrowings, he said. You can’t unscramble that egg. But little is being done to improve things for the future.

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