Bankers, economists and politicians shared a "manic culture" of denial, omnipotence and triumphalism as they threw caution to the wind, says Professor Mark Stein, the award-winning academic from the University of Leicester School of Management.
Observing - but not heeding - the warning signs from the collapse of the Japanese economy in 1991 and the 1998 crisis in south-east Asia, the financial world in the West went into an over-drive of denial, escalating its risky and dangerous lending and insurance practices in a manic response, he says.
Professor Stein, who has today (June 7) been awarded the iLab prize for innovative scholarship, identifies and describes this manic behaviour in the 20-year run up to the credit crisis in a paper published in the Sage journal Organization.
The causes of the banking collapse that plunged the UK and many other countries into recession have been well documented but an important question remains: Why did economists, financiers and politicians fail to anticipate it?
Professor Stein argues that the financial world was suffering from collective mania in the two decades running up to the events. "Unless the manic nature of the response in the run up to 2008 is recognised, the same economic disaster could happen again," he warns.
He defines the manic culture in terms of the four characteristics of denial, omnipotence, triumphalism and over-activity. "A series of major ruptures in capitalist economies were observed and noted by those in positions of economic and political leadership in Western societies. These ruptures caused considerable anxiety among these leaders, but rather than heeding the lessons, they responded by manic, omnipotent and triumphant attempts to prove the superiority of their economies."
The massive increase in credit derivative deals, industrializing credit default swaps and the removal of regulatory safety checks, such as the repeal in the United States of the landmark Glass-Steagall banking controls were a manic response to the financial crises within capitalism," he says.
Professor Stein's award-winning research paper - A culture of mania: a psychoanalytic view of the incubation of the 2008 credit crisis – says this behaviour was also strengthened by "triumphant" feelings in the West over the collapse of communism.
"Witnessing the collapse of communism, those in power in the West developed the deluded idea that capitalist economies would do best if they eschew any resemblance to those communist economies, thereby justifying unfettered financial liberalization and the destruction of the regulatory apparatuses of capitalism. The consequences of this manic response have been catastrophic, with the on-going eurozone crisis being - in many ways - a result of this," he says.
"Whether one examines the actions of banks and hedge funds, or the limitations of ratings agencies, auditors, regulators and governments, a more worrying and deeper question emerges concerning why so many parties, more or less simultaneously, were implicated in such unprecedented and extreme risk-taking."
More information: The full paper can be found here: http://org.sagepub … ull.pdf+html
Provided by University of Leicester 
France's cut to retirement age worries business - Daily Telegraph
The decision makes good pre-election promises from the new French socialist president Francois Hollande to undo his predecessor Nicolas Sarkozy’s increase in the pension age.
French politicians have cited “social justice” to explain the move, which goes against trends seen across much of the Western world as nations face the costs of aging populations. “In our view the measure is a move in the wrong direction,” said economists at Citi.
The new retirement age of 60 will apply to those who entered the workforce at 18 or 19 years old and are judged to have contributed long enough to the pension system.
The government said the decree, affecting about one in six retiring workers, will be finalised later this month and take effect in November.
American Financial to refinance $200 million in debt - The Business Journal
American Financial Group Inc. plans to refinance nearly $200 million in debt, it said Thursday in a Securities and Exchange Commission filing.
American Financial (NYSE: AFG) said it plans to issue senior notes and use the money it borrows and cash on hand, if necessary, to pay off $112.5 million in senior notes. It pays a 7.5 percent interest rate on those notes, which are due in November 2033. American Financial also will pay off $86.3 million in 7.25 percent notes that are due in January 2034.
If it has money left over from the debt offering, American Financial plans to pay off part of the $115 million in 7.1 percent debt that is also due in 2034, it said in the filing. It could also use additional money it raises for general working capital purposes.
The downtown-based insurer didn’t say how much it plans to raise in the debt offering, what the interest rate will be or when it will make the offering. It will provide that information later.
American Financial’s stock rose 17 cents, or 0.4 percent, to $39.42 in mid-morning trading Thursday.
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George Osborne should slow pace of financial reform, MPs warn - The Guardian
George Osborne should slow down his radical programme of financial reform or risk failure, the treasury select committee will warn on Friday.
The chancellor's financial services bill, which hands the power to supervise financial institutions back to the Bank of England and creates a regulatory body to protect savers, is about to move to the House of Lords.
The cross-party committee of MPs, chaired by the Conservative Andrew Tyrie, has already secured a number of amendments to the bill. But it has taken the unusual step of publishing a report detailing the changes it believes must be made if the bill is to fix the shortcomings that led to the 2008-09 financial crisis.
"No explanation has been given for the rush to produce the bill and place it on the statute book by the end of the year. Better to take a little more time and get it right, than rush it," said Tyrie, adding: "The financial services bill is the most important overhaul of financial regulation ever undertaken in this country."
The committee is particularly concerned that the court that oversees the work of the Bank is too weak to constrain its powerful governor.
"Many people argue that the current corporate governance at the Bank is defective; we agree," said Tyrie. "What's being proposed, even with the amendments as a result of committee and parliamentary pressure, risks replicating those defects. There is more to be done."
Tyrie would like to see the court handed a statutory responsibility to carry out reviews of the Bank's performance, with the select committee given a veto over the appointment of future governors.
The Bank recently announced several reviews of its performance during the financial crisis, following intense pressure from the committee – though some observers have complained that they are too narrow in scope to constitute a comprehensive overview.
Tyrie and his colleagues are also calling on the Treasury to clarify what powers the department would have to overrule Sir Mervyn King and his successors.
Former chancellor Alistair Darling's autobiography revealed his concerns about whether he could command King to act at the height of the banking crisis. Darling also recently described the governor as an all-powerful "sun king".
Osborne came to power determined to dismantle the so-called tripartite system created by Gordon Brown, in which the Financial Services Authority, the Bank and the Treasury shared responsibility for safeguarding the stability of the banking system.
Financial Fraud Is Back - Stronger Than Madoff - Forbes
Financial fraud is on the rise. You’d think with the increased awareness due to publicity around Bernie Madoff’s $65 billion dollar Ponzi scheme that incidents of financial fraud would have gone down, but instead it has been quite the opposite. According to the Federal Trade Commission’s (FTC) Consumer Sentinel Network Data Book, there has been a 62% increase in financial and other fraud claims in just three years, with over 1.5 million individual claims in 2011. Some of it we have little control over, such as hackers accessing personal account information from financial institutions over the internet. Areas we can control are the more personal ones where we are actually writing checks, although “affinity” scams and Ponzi schemes are more subtle and not as easily recognized. With the passing of the JOBS Act of 2012, “crowd funding” opportunities also open the door for more fraud possibilities.
I am highly aware of financial fraud, not just because I am a financial planner, but because I live in a state participating in a wide scale anti-fraud awareness and education campaign. I live in Utah, a state besieged by financial fraud (approximately $2 billion dollars since 2010), especially “affinity fraud,” which targets closely knit religious groups. Utah only has a population of about 3 million people, so the fraud bill is around $700 per person. At this level of fraud, the state of Utah loses about 1% of its Gross State Product each year—dollars that are sorely needed in today’s economy.
The victim’s lives are changed forever, but fraud also affects everyone. A fraud victim may have to delay retirement if their nest egg disappears. This means not one but two jobs are affected—the co-worker who might have gotten a promotion, and the young new hire who would have taken their place. The effects of financial fraud can contribute to high unemployment as workers hang on to their jobs since they can’t retire. It also may contribute to the $1 trillion in student debt as children of fraud victims take on additional student loans when college funds are wiped out. The housing market is affected when a home is foreclosed on and the bank takes a loss, which can cause neighborhood real estate values to decline. Even the community takes a loss when less property tax is paid, which means fewer funds available for public schools. There is also the unseen cost when fewer cars are purchased, fewer new homes are built, and fewer remodeling projects take place. Whether it is direct or indirect, fraud’s effects are deep.
Here are three areas where financial fraud can occur, and how to protect against it:
Insure yourself against identity theft. Identity theft may be a passive type of fraud where you aren’t actually writing a check to a scam artist, but you are vulnerable nonetheless. Security can’t keep up with the proliferation of identity theft as hackers are constantly finding new ways to access your personal information. In fact, McAfee Blogger Carlos Castillo writes about Trojan computer viruses ironically called “bankers” that steal your bank passwords. Smart phone information is the next challenge for hackers.
Internet banking and mobile banking apps aren’t bad. In fact, easy access to your information can be helpful in managing your cash flow. You just don’t want anyone else getting your information. With malicious hackers out there, it’s tough to protect yourself. The best course of action is to use some basic common sense practices of protecting your personal information, and to only use secure sites. Beyond those protective steps, you can insure against loss in two additional ways. Start by choosing financial institutions that back you up with strong guarantees. For example, Bank of America offers a zero liability guarantee for their consumer debit and credit cards. Check with your bank to find out what your liability would be for fraudulent transactions. Ask them if there is a time frame in which you need to report fraudulent transactions, and be sure to monitor your accounts accordingly. For example, US Bank will cover any unauthorized transactions as long as you report them within 60 days of the first statement date when the unauthorized transactions appeared.
Secondly, subscribe to a credit monitoring service through one of the major credit bureaus. As a former victim of identity theft, I try to be extra cautious and use Experian’s service that has daily monitoring, alerts, and a $50,000 guarantee with access to a fraud resolution specialist. The new reality in the world today is in addition to life, disability, home and auto insurance, we may also need anti-fraud insurance.
If you are a victim of identity theft take action immediately. Report it to the police and place a fraud alert on your accounts with the credit bureaus. With this action, a requirement to notify you if new credit is being requested in your name is added to your credit file (at no cost to you). Close your bank accounts and transfer funds to new ones. The sooner you take action, the better you can protect yourself. The Federal Trade Commission has guidelines on actions to take – click here.
Watch out for the same scam but with a different disguise. In almost all cases of fraud, there is no actual investment made. The classic Ponzi scheme consists of paying off early investors with money taken in from late investors—a scam that dates as far back as 1899. There may be other types of scams out there that have yet to be detected. Ironically, this is actually one of the easiest things to catch. The problem is usually the scammers seem beyond reproach. Maybe they are part of a church or synagogue, or they are a well respected leader in the community, so the victims don’t do thorough due diligence on the investment.
The bottom line is with any investment, there should always be an independent statement coming from a third party. If you are only getting an investment statement from the broker, and not the investment company, that should raise a red flag. You should always receive a separate statement from the investment company where the funds are held with a general phone number to the home office. Some other red flags include consistently high investment returns, unregistered securities, unlicensed sellers, and overly complex transactions.
Prevention is the best defense for this type of financial fraud since recovery of assets could be minimal at best.
Watch out – “Crowd funding” could attract the next wave of financial scammers. Crowd funding has been around in the U.S. for years as a way for charities to raise capital, and President Obama was a master at generating campaign contributions through a similar system using Twitter and Facebook during his presidential election campaign in 2008. Used correctly, crowd funding can be a boon for startups that are looking to raise money, which in turn will hopefully help create jobs in the U.S. “Used correctly” is the operative term because the system is fraught with potential fraud against unsuspecting investors. For this reason, the recently signed JOBS Act has incorporated investment restrictions that are intended to protect investors, such as capping investments at $2,000 for investors with an income or net worth of less than $100,000.
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