How to avoid the next financial crisis? | MICHEL GIRARDIN | TEDxGeneva

Over the last 6 centuries, financial
crises occur for almost always the
same reason: we increase our
debts to unsustainable levels, be
it in the government, corporate or
households sectors.
The problem is that no financial
institution is willing to tackle
credit bubbles before they burst
into severe recessions. Central
Banks are only ready to intervene
once financial crises take place
rather than prior to them. Their
main justification for doing so lies
in the difficulty of measuring excessive
indebtedness. The problem
is that there is no guarantee
whatsoever that the massive
liquidity injections by the Central
Banks post financial crisis will
be effective in jumpstarting the
economies away from recession.
Detecting bubbles is no easy task
but not an impossible one. In this
talk, I show some simple measures
to assert whether debt has
indeed become unsustainable. A dual Swiss and French citizen, Michel Girardin teaches Economics and Finance at the University of Geneva.
His video course on investment management ranks no 1 in popularity out of 980 Massive Open Online Courses (MOOCs) in Business on Coursera’s platform and has been followed by more than 650’000 students worldwide since 2016.
He holds a PhD and a B.A in Economics from the University of Lausanne as well as a Master of Science in Economics from the London School of Economics.
Michel has more than 25 years’ experience as Chief
Economist and Chief Investment Officer in the Swiss private banking sector. In 2012, he was included in Bilan magazine’s ranking of the 50 most influential personalities of the Swiss financial sector. This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at www.ted.com/tedx

[@raychristopher7797]

Been watching, listening, and paying attention to all of predictions and forecasts since early Covid. He hasn't disappointed yet 👌

[@jesbensommichael8397]

Well said! I am also here to learn how to invest after listening to a lady on tv talk about the importance of investing and how she made 7 figures in 3 months, somehow the video taught me nothing and left me even more confused, I'm a newbie and I'm open to ideas on how to invest for retirement

[@raychristopher7797]

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[@jesbensommichael8397]

@@raychristopher7797 Despite the economic crisis and the rate of unemployment now is the best time to invest

[@raychristopher7797]

@@jesbensommichael8397 Investment now will be wise but the truth is investing on your own will be high risk. I think it will be best to get a professional👌

[@jesbensommichael8397]

@@raychristopher7797 Thank you, Going through her profile on her webpage out of curiosity, and surprisingly she seems proficient. I appreciate this.

[@physictist]

Come here from Coursera! :)

[@perstromback6645]

This was a strong TED talk. Michel is very talented in explaining recurring macro economic events by comparative examples.

[@michelgirardin4074]

Thank you Per ! The key for a successful TED talk, or indeed any Public speaking, is to convince yourself, just before going on stage, that what you are going to share with your audience truly matters. You thus concentrate on how to best share your views, rather than on how you look or speak.That is the best way to remove the stress and be at ease on stage !

[@alekseyko9501]

Thank you Michel, as always, you can show a complex issue and explain it with a smile and simple wording. Good speech!

[@joedunphy5064]

Amazing how prescient this is, 3 months later the central bank did just this with few guardrails, and now we are vulnerable to that decision.

[@bluestefan77]

I already follow him in the course Investment management and I confirm my idea that Michel is the best one in explaining financial topics I've ever seen

[@elmemo809]

Excelent and timely advise from professor Girardin

[@JayDennisMurphy]

A concise and understandable explanation of financial crises. Thank you! (Thanks to Corsera for sharing this.)

[@valkondruk]

Great talk, Michel! Many thanks from a grateful student.

[@silviabernardi2723]

Merci Michel de nous apporter cette lecture si claire de réalités si complexes

[@michelgirardin4074]

Merci Silvia ! J'ai toujours aimé vulgariser et ... l'exercice est payant pour tout conférencier, surtout quand les sujets sont ardus...

[@oliolioli1765]

I love this kind of conferences from TEDX because they are short and go to the point. In 20 minutes you have the main idea. Many thanks. Il n'y a pas en français? j'aimerais bien que d'autres puissent en profiter. Merci professeur Girardin.

[@michelgirardin4074]

Bonjour Oli. Je rédige un livre sur ce sujet ... et il sera en français. Sinon, je vais aussi regarder pour avoir une version avec des sous-titres en français

[@oliolioli1765]

@@michelgirardin4074 Excellent. Tenez moi au courant de votre livre. Je pense que cette pandémie va aussi faire une révolution au niveau de la façon de donner des cours. Avant c'était très difficile de trouver des cours à distance en Europe pendant les institutes et les universités de l'Amérique avait beaucoup d'avance sur nous en Europe

[@robhabibi]

Well articulated, thank you. I sat through your course on Financial Markets on Coursera. My question is: Where does the inverted yield curve play in your scenario? Is that one of the factors that you look at? Would be great to have a white paper on a more comprehensive understanding of all the critical factors that play a key role in predicting the next financial crisis.

[@michelgirardin4074]

Thank you Robert ! In the past, an inversion of the yield curve, where short term interest rates rise above long-term ones has always been followed by a recession. Many investment strategists now look at the inversion of the yield curve (10y bond yield at 1,61% vs short term rates at 1.70%) as likely evidence that the US economy will enter into recession in 2020. I do not share this fear. Since central banks embarked on unconventional policies, the slope of the yield curve is no longer a reliable leading indicator of economic activity. The distortion stems from the control by the central Bank of the long-end of the curve. Under Quantitative Easing (QE) regime, the Fed buys US Treasuries whenever it wants to boost the quantity of money in circulation. As a result, bond yields fall, possibly below the levels of short term interest rates. But it would be utterly wrong to conclude that monetary policy is being too tight. In fact, it is the opposite ! I have estimated that 10 Year bond yields are currently 150 basis points below where they would be had the Fed not carried out its QE. The “true” yield curve is thus much steeper than it currently looks, pointing to low recession risks.

[@robhabibi]

Michel Girardin fascinating observations. Will be watching the space!

[@gaurideshpande9925]

I loved this!!!

[@martin-kx1su]

Thanks Dr. Michel. Hippocrates: "Before curing someone, ask him if he is willing to give up the things that made him sick." I will post this KZbin link on the FED twitter, what is said is very valuable!

[@michelgirardin4074]

Thanks Martin ! I have been trying hard to pass the message that Central Banks should include financial assets metrics in their measure of inflation. This is the only way for them to act before financial crisis occur, not after ! To no avail. The New York Fed did start publishing an Underlying Inflation Gauge a few years ago. It is built as an average of 235 prices of items in the consumer basket and 49 financial variables. A good initiative, but the measure is way too broad to detect speculative bubbles. And, more importantly, the Fed uses this UIG not to detect bubbles, but to better predict the consumer price index. By and large, central banks remain allergic to step in before speculative bubble bursts.

[@timpellemeier587]

​@@michelgirardin4074 I disagree. Central banks should base their monetary policy on whether the production potential of the economy is used up to it's potential or not. Only if producible goods get scarce and thus if the prices of producible goods increase (because the production potential is close to being exhausted - thus the demand for all producible goods is larger than what can be produced) it's time for the Central banks to tighten their monetary policy. However, if the price for producible goods does not increase, we need more aggregate demand for producible goods, so that the production potential can be used up to it's potential (but not more than that). If the price for assets rises (for example the price for land right by the see), this might just be an indicator that the demand has gone up. However, as land is something that cannot easily be produced, we cannot increase production of such goods just because the demand has gone up. So the price simply has to rise in such cases. When a society gets richer, we are able to provide everyone with 2 or 3 TV-sets - however we are not able to provide everyone with a patch of land right by the sea. We have seen a secular trend of declining real interest rates (because 75 years of peace have created huge savings and thus have made capital less scarce). Rising prices in the asset markets (like shares) thus might just be a sign, that equilibrium interest rates are very, very low. (I prefer the term equilibrium interest rates to "natural interest rate") - in spite of the large debts in the government sector. Your indicator the a recession is near, if 6% of GDP has to be used for interest payments sounds interesting. When interest rates are 0%, this can hardly be the case, though. I recon you include risk premiums though. If we have a patch of fertile land and we rent it to a farmer, this patch of land will give a yearly interest. Let's say it's $1000 that I get from this patch of land. Let's also assume that the real interest rate in the society I live in is 1% (and everybody thinks that this interest rate will stay the same for the next 100 years). Than the value of this patch of land is about $100k - as a save bond of $100k would earn interest of about $1000. Now, please tell me the price of the patch of land, if the rent for this patch of land would stay the same but if the real interest rate would fall to 0% and the society expects the real interest rate to be 0% for the next 100 years!!! -> Asset prices are not a good indicator for a too loose monetary policy, as we have seen that 0% real interest rate can be the equilibrium interest rate (even if interest rates maybe should be higher - confer to the golden rule of accumulation etc.)

[@filthyfinancials1622]

@@michelgirardin4074 what are your thoughts on the current market environment? Would love to know what you've concluded for the future of 2023

[@RBOffice365]

Excellent video...

[@jesunsjs]

Great talk

[@HusicDejan]

Best way to avoid a financial crisis is to stop financial engineering and manipulation by governments and their respective central banks where their own monetary policies inflate bubbles then bailout those who drank too much, with the money of those who did the right thing and did not..

[@MadanSingh-ic3vm]

Excellent

[@obey2dmax]

Feds ease up on Interest rates for too long expecting Corporations' Expansionism, but Corporations overleveraged thinking impossible to have a real estate bubble or overextended itself because of greed. Recently they just did a stock buy backs.

[@liondragon88]

First bank ever wasn't created in 1472. Banca Monte dei Paschi di Siena is the oldest bank still in operation. Banking was well developed by the 14th century.

[@michelgirardin4074]

Banking activities did exist prior to 15th and yes you are right, MPS is the oldest bank in the world... still in operation

[@toukyoumaster8734]

I enjoyed this talk as well. Sadly the recession began less than a month after this talk was held and was caused by the coronavirus, though I believe that deep down there would have been a recession anyway and that this recession has yet to have been uncovered as of June.

[@filthyfinancials1622]

Look at us now. Full swing.

[@emilieraffo5177]

I love when we get a look at the audience: we're all smiling and captivated. Very strong finish with global warming ! Thanks for making us laugh while reflecting on our financial system ... a hard task !

[@Bogdanbmm]

Heh indeed ... saw you there ;)

[@michelgirardin4074]

Thanks Emilie. Indeed, being funny when talking about financial markets is a bit of challenge, but that's what makes interesting !

[@wesleybarini4212]

@@michelgirardin4074 you were great!! I just remembered your classes on Portfolio and Risk Management. Your presentation was very inspiring. Congrats!

[@anton1lm]

Awesome

[@justinwalworth9008]

Interesting how much of this looks different or completely wrong now that we’ve seen 2020 through the first half of 2022.

[@VedeninaMS]

Where to find/ how one calculates Debt cost (%GDP) ? many thanks

[@drugzverey3610]

He mixed up the reasons and the results of any crisis. Big scientific brains, I like them.

[@deesee5545]

3 months later, The start of the next financial crisis begins

[@Arunkumar-sp8ne]

Happening presently

[@joshuarenalds6247]

high amounts of debt/speculation, and high prices/valuations

[@nthperson]

Our problem is systemic. Systemic flaws in our socio-political arrangements and institutions (in particular, taxation policies) cause cycles in property markets to go from boom to bust every 18.5 years. Rising land prices are a fundamental source of the inflation that runs thru all sectors of an economy. Rising land prices translate into higher apartment rents, higher asking prices for residential properties and the mortgage loan debt carried by an increasing number of households. When the cost to businesses of leasing commercial space climbs, they have to raise their prices to protect profit margins. Automobile and credit card debt climbs. When the inevitable recession occurs and unemployment increases, defaults on debt skyrocket. Banks fail. Farmers lose their farms. Property owners suffer foreclosure and eviction. Solutions? Read what Mason Gaffney, long-time economics professor at the University of California has to say on the issues.

[@diyallegrobusrepairmods5585]

I know I'm OCD. But, the creaking floor is driving me nuts!!

[@Bogdanbmm]

Great one ... could we please access the slides ? Thank you

[@michelgirardin280]

OK Bogdan: can you send email ?

[@harikoulouri]

Very nice talk!!! Let's eliminate debt then!!!

[@timpellemeier587]

Eliminating debt would mean to eliminate all savings! As savings and debts are two sides of the same coin. Everyone would have to save in form of equity.

[@dylanopowell5884]

j aimairais bien venir la prochaine fois

[@MarkWilliams-ix1qf]

In a nutshell: There was "too much reckless borrowing". Borrowers were reckless and borrowed beyond their ability to repay. Banks were reckless and made loans to weak borrowers, hooking them with sucker low rates on adjustable rate mortgages and using unverified "stated income" to qualify weak borrowers. Investment banks bought blocks of these bad mortgages and resold them as "Mortgage Backed Securities" to large institutions like pension funds and insurance companies. When borrowers could not repay the loans, the MBS's became worthless. Anyone who bought MBS's lost. Government bailed out most big banks and AIG, which benefitted the very wealthy, but not borrowers who lost their homes. The rules weren't really changed, so this can all happen again. So don't borrow recklessly folks.

[@jochemevers6672]

1:41 and 8:46 are the same footage of the audience ^_^

[@drago-ig6ms]

What is that Debt cost (%GDP) 11:38. Can't find it anywhere. Can someone please link me or help me search it?

[@VedeninaMS]

+1 have you found the reply?

[@miked5106]

I believe that TARP was copied from the EU. Am I wrong?

[@SeanWhite03]

Its heeeere

[@prakashdayanandan3176]

Just stay cash. When the bubble bursts. Buy champagne ,stocks cheap and hold!

[@vinnerzucc1154]

Thank you Professor Michel for this talk as well as the courses on Coursera. You are an excellent teacher, I simply can’t thank enough for how you’ve piqued my curiosity and aptitude through the courses you’ve taught.

[@michelgirardin4074]

Thank you Vinayak ! glad you appreciate my talks

[@anythinginteresting101]

He said what the daughter suggested in the end.....

[@classicrock2560]

2021?

[@lug.5329]

People need to borrow because of wage stagnation. Make the wages go up with the cost of living and people won't need to borrow that much.

[@filthyfinancials1622]

The goal is to make us all serfs again. The banks want what's happening.

[@lug.5329]

@@filthyfinancials1622 ,yes, and governments have been powerless for years

[@gcdhvf4896]

Replace fiscal deficit, interest and human greed with Islamic Shariah Banking (accountability, fair trade, price levelling up, charity and good will) and the problem will be solved

[@Tchild2]

Missed the Covid-19 meltdown that came six weeks after this talk.

[@shanr2343]

Comming very soon. Get ready. Prepare I start 2018 not even ready.

[@michelgirardin4074]

Timing financial crisis is a difficult job. It's like looking at a mountain full of snow and predict when the avalanche is going to be triggered. Bu what we can and should do is to look and financial markets and the global economy to assert whether the risk of an "avalanche" is high. Currently, it is above average, but not in the risk zone ... yet. That is, provided the coronavirus does not go pandemic and triggers a worldwide recession...

[@vwro13]

​@@michelgirardin4074 Excellent video Michel. Considering the current pandemic scenario, do you think that the FED's $1.5 trillion injection will be enough to contain the recession? I am worried about the US hitting the 0% interest rate floor.

[@arifulislamleeton]

Introduce myself I'm Arif Khan harry I'm software engineer and software development and investors and members of the Democratic and students funding United States

[@Mustafa2892]

First step stop corona virus

[@pascal5238]

long bitcoin, short the banks

[@petermukuka7857]

Nm

[@thesystemsucks]

buy bitcoin

[@ralph4704]

The first move, get rid of Biden.

[@sandikennelly1357]

My source tells me tanks will be involved at Biden’s swearing in. If true...is this still America?