3. Macroeconomics and finance matter
Until 2008, most models of the economy ignored the financial sector; and most financial models ignored the macroeconomic underpinnings of interest rates and risk premia. That was a mistake. The financial sector is not like the oil and gas, consumer goods, or technology sectors. It has profound implications on the way the overall economy works, and financial imbalances can have multiplying effects on the real economy.
Over the last 10 years academic research has made a lot of progress to understand these relationships. Now we recognize that the financial sector can be a mechanism to transfer shocks from one country to another, as it happened when a real estate bubble in the U.S. triggered a banking crisis in Europe.
4. Regulation helps preventing previous crises – not the next ones
Many of us agree that, before 2008, we should have had not more, but certainly better regulation. Unfortunately, the aftermath of the Lehman collapse brought about a plethora of new rules: Basel III, the Dodd-Frank act in the U.S., several European directives; rules affecting rating agencies, compensation, derivatives, financial markets, payment systems and so on.
We now know that, if had we had these rules in 2000, the world would have been different. But because markets move faster than regulators, we also know that our new set of rules will not be able to prevent the next crisis.
5. If you do not understand a product or technology, it is probably your fault
Warren Buffett is famously quoted as saying: «when I do not understand a business, I do not invest in it.» Applied to 2008, this statement allows many to justify the excesses caused by financial innovations such as credit default swaps, collateralized debt obligations, repos and so on. We did not understand them and at some point they controlled us more than the opposite.
I disagree. Executives have the obligation to learn, understand, and question when new products and technologies are not clear to them. Complexity cannot be an excuse. In the coming years complex technologies – blockchain, artificial intelligence – are going to drive new business models. Leaders better make the effort to master them.
