Abstract
The global financial crisis has brought unprecedented harm to millions of people who have lost their savings, their businesses, their jobs and their homes. The consequences of the financial crisis are many; here I will focus on two of the readings to be drawn from it. The first is that "numbers" alone are not enough to circumscribe systemic risk. The second is that financial crises have direct negative effects on other aspects of our lives, notably social, environmental and economic.
The figures are reassuring. In a world where so much is beyond our control, the idea of being able to make decisions by measuring the "effectiveness" of a strategy is particularly appealing. This idea can be found in corporate governance theories, which are based on the belief that managers have an obligation to "maximize" shareholder wealth; indeed, we imagine we can make a quantified assessment of the effectiveness of corporate governance. However, from a conceptual point of view, uncertainty remains, raising questions about the power wielded by corporations, the balance between the interests of investors, all of whom have different time horizons, and the legitimate care that corporate managers must take of the affairs of stakeholders other than shareholders. The tendency in the markets is to reduce everything to numbers, and in so doing to neglect the role of the human factor in decision-making. The financial products that have proliferated on the markets, such as derivatives, sub-prime mortgages and securitized debt, have caused great harm to ordinary citizens. The damage caused by the crisis had a global impact in terms of financial losses, while a small group of privileged individuals made millions, with little regard for the harm they inflicted.
The underlying causes of the financial crisis were complex: they were linked to the interplay between structured finance products, regulatory loopholes and a lack of understanding of systemic risk [1]. Securitization, originally a means of managing risk, led to a situation in which the bank, having collected the fees associated with a loan, offloaded the risk by spreading it over several tranches and selling the rights to ordinary citizens as if they were low-risk investments, when in reality the risk was very high. Another problem was that the financial institutions had bought "credit default swaps". The original purpose of these contracts to manage risk was superseded by the emergence of a speculative market. Unlike home insurance, which only covers the value of the dwelling to discourage actions such as setting a fire in order to be compensated, there are no limits on the amount of the CDS payout, which is an incentive to precipitate the collapse of companies.
