Hedging against the Next Financial Crisis

University of Cambridge Professor Peter Horrell recently published a study on the 2008 financial crisis, and it should worry anyone who expects to someday use a bank to invest. This study suggests that the global financial system may be far less resilient now than it was in 2008.

Indeed, if our entire financial system were to suddenly falter today, Professor Horrell believes it would likely cause severe economic damage across the world. With most investment banks that failed during the financial crisis already gone, a major crisis in the future could come only from the emergence of new banks. If such banks were to raise a large amount of debt on stock markets, investors could wind up with worthless shares and lose their money.

It is a disturbing forecast that many experts and analysts have suggested about the ability of the financial system to weather any subsequent financial crises. Even the International Monetary Fund has suggested that there may not be enough financial safety nets for investors today.

While Professor Horrell admits that this research does not demonstrate that financial crises will happen again in the near term, it does show that the global financial system may be extremely vulnerable to future disruptions and could also suffer considerably in the future.

In short, this research highlights that the global financial system is incredibly fragile, and it makes it even more difficult to predict where financial trouble may come from in the future.

The Financial Data We Are All Seeing

If Professor Horrell is correct, the financial data we are all seeing today should raise alarms about the potential for future financial trouble. Every time we hear about an investment bank in trouble, we should realize that it may not be a sign of financial trouble, but the sign of another problem with the financial system.

Professor Horrell’s report shows us a financial system that is in serious trouble. He suggests that the financial institutions that have failed so far are likely to be the only banks in trouble in the future. The global financial system was previously fragile, but it has not been damaged nearly as much as he believes, and it is quite likely that it will be just as fragile in the future.

Financial Data Interpretation Education

In short, the financial data we are all seeing today is not particularly reassuring about the financial stability of the global financial system. Given this troubling outlook, we need to worry about what we are seeing, and we need to worry about the long-term financial situation of the global financial system. Enough by John Bogle is a great place to start in educating yourself about how you can hedge against the next financial crisis, especially since we can never truly predict exactly when it will be.

We also need to think about whether global economic growth in the next decade and beyond will be weaker than current estimates suggest. While some experts predict continued global economic growth, others expect anemic growth in many parts of the world in the near term. Ultimately, we are far more likely to face the consequences of financial instability than we are to benefit from further economic expansion in the next decade.

Infographic created by Clover Network – a pos systems company