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FEU.ED.03 - Linda.vtt

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{{00:00:04}}
Hello, we're here at
Finovate Europe in London.

{{00:00:06}}
I'm David Penn, Research Analyst with
Finovate, and joining me is Linda Yueh.

{{00:00:10}}
She is Fellow at Economics
at Oxford University.

{{00:00:12}}
She's fresh off the stage
from her keynote address.

{{00:00:14}}
We're going to talk a little bit about
that, about her book, and some of her

{{00:00:17}}
thoughts about geopolitics here in 2025.

{{00:00:19}}
Thank you for joining us.

{{00:00:20}}
Thank you so much for having me.

{{00:00:22}}
Fantastic.

{{00:00:22}}
Let's go ahead and start
off with your book.

{{00:00:23}}
And I'm going to read the title here.

{{00:00:25}}
The Great Crashes, Lessons from Global
Meltdowns and How to Prevent Them.

{{00:00:28}}
Now, in this book, you talk about
a three step framework that helps

{{00:00:31}}
people understand, recognize
early signs of trauma, and in some

{{00:00:34}}
instances, mitigate those threats.

{{00:00:36}}
Could you talk a little
about that framework?

{{00:00:38}}
Yeah, absolutely.

{{00:00:39}}
And the first thing I should say,
the book is called The Great Crashes.

{{00:00:42}}
When economists say great,
they mean the opposite.

{{00:00:47}}
These are unfortunately, and we've
had a regular, I would say repeat

{{00:00:52}}
of a lot of financial crises.

{{00:00:53}}
And so what I hope to do with the book
is to help at least spot the signs

{{00:00:58}}
and try to ameliorate the crisis so
they don't become global meltdowns.

{{00:01:02}}
So how do we do that?

{{00:01:03}}
Every crisis starts with a bubble
and bubbles repeat themselves mostly

{{00:01:07}}
because of FOMO, fear of missing out.

{{00:01:10}}
You think this technology or in the,
Back in the 17th century or so, 16th

{{00:01:17}}
century could be anything like tulips.

{{00:01:19}}
So basically you get a
Zubrin about prices go up.

{{00:01:22}}
And the real danger is if you pile in
because of FOMO, but you do it with debt.

{{00:01:29}}
Because then when the bubble bursts,
that's the second phase, the resolution.

{{00:01:34}}
And that's really challenging
because it depends on having credible

{{00:01:37}}
policies and credible policymakers.

{{00:01:40}}
So for instance, the
International Monetary Fund says,

{{00:01:43}}
the first eight months
of a crash are vital.

{{00:01:46}}
And I write about Japan's real
estate crash in the early 1990s.

{{00:01:49}}
It took them eight years.

{{00:01:52}}
And it resulted in lost decades of growth.

{{00:01:55}}
The final phase is just
that, the aftermath.

{{00:01:58}}
What determines the aftermath?

{{00:01:59}}
How much are you leveraging,
which is the repayment of debt.

{{00:02:02}}
And then, how credible were the policies
that were used to resolve the crisis.

{{00:02:07}}
In Japan's case.

{{00:02:08}}
It was pretty long stagnant
for a long period of time.

{{00:02:11}}
And if you think about the global
financial crisis from 2008,

{{00:02:14}}
that was also pretty miserable.

{{00:02:16}}
However, the dot com bubble, when it
burst in the early 2000s, resulted

{{00:02:20}}
in a short recession, pretty mild.

{{00:02:23}}
So therefore, the aftermath is
very dependent on how a crisis is

{{00:02:28}}
resolved, but most importantly, how
much debt was initially involved.

{{00:02:32}}
Yeah very interesting
given that framework.

{{00:02:34}}
And as you look the current
environment, you talked about a

{{00:02:36}}
number of these things on stage.

{{00:02:37}}
What do you see?

{{00:02:38}}
Are there things right now that you
would say this is starting to look

{{00:02:41}}
a maze fuel arm bell, so to speak?

{{00:02:43}}
Yeah.

{{00:02:44}}
So one of the bits of advice I was given
is that you should predict the event.

{{00:02:50}}
Or the timing, but never both.

{{00:02:52}}
And so I don't know what the next
crisis will be, but if I look at areas

{{00:02:57}}
where you see a lot of debt buildup,
I would probably single out China,

{{00:03:02}}
which has had a property bust already.

{{00:03:04}}
And.

{{00:03:05}}
They have taken about two to three years,
and if they still haven't resolved the

{{00:03:10}}
issues with the property developers.

{{00:03:12}}
So this is already going beyond that time
frame that I mentioned the IMS suggests.

{{00:03:17}}
And I think the reason I would look
at China is also because to have a

{{00:03:21}}
global impact not a lot of crises
would have a systemic global impact,

{{00:03:27}}
but China is the biggest lender in the

{{00:03:29}}
world.

{{00:03:30}}
And so it lends to 175
out of 185 jurisdictions.

{{00:03:35}}
So it's would have a
pretty widespread impact.

{{00:03:39}}
But anything could be the next crisis.

{{00:03:40}}
Shadow banking is something that the
Bank for International Settlements

{{00:03:44}}
which is known as the Central Bank.

{{00:03:45}}
They're very worried about it
because since the global financial

{{00:03:49}}
crisis shadow banks such as things
banks A banks constitute lending

{{00:03:55}}
with they have banking licenses.

{{00:03:57}}
Shadow banks are just institutions
that don't have a banking

{{00:04:01}}
license, but they lend money.

{{00:04:03}}
So think of these as could
be insurance companies.

{{00:04:07}}
It could be private
credit, anything like that.

{{00:04:10}}
So right now, half of the credit in the
world comes from shadow banks, and they're

{{00:04:13}}
not as regulated as conventional banks.

{{00:04:16}}
And so that could be
another source of crisis.

{{00:04:18}}
So really, It could be
any number of things.

{{00:04:21}}
So my book came out.

{{00:04:22}}
The tech crash was still ongoing.

{{00:04:25}}
A book just came out, but the
hardback came out a year earlier.

{{00:04:28}}
And when the NASDAQ crashed in November
2021, the NASDAQ recovered, but private

{{00:04:33}}
tech markets continue to struggle.

{{00:04:35}}
And then of course Silicon Valley Bank
and those regional banks have failed.

{{00:04:39}}
So anyways, I'm going to stop because
any one of these things, Okay.

{{00:04:43}}
Happily, luckily, it's not a
great crash, but there's just a

{{00:04:48}}
just unfortunately pretty regular
occurrence of these kinds of crashes.

{{00:04:51}}
Sure.

{{00:04:52}}
I want to stick with the financial
sector for a little bit longer.

{{00:04:55}}
Some of the things that people think
about right now in terms of potential

{{00:04:58}}
challenges, the geopolitical situation in
Europe and Asia and other places, as well

{{00:05:02}}
as the high interest rate environment.

{{00:05:03}}
You mentioned that again in your keynote.

{{00:05:04}}
In terms of things like that, are
there aspects of the financial services

{{00:05:07}}
industry that are more vulnerable
or less vulnerable to shocks from

{{00:05:11}}
either of those sorts of sources?

{{00:05:12}}
Yeah, so it's a great question because I
mentioned how inflation could stay high

{{00:05:17}}
for longer because of geoeconomic shock.

{{00:05:20}}
So for instance, the Middle
East tensions are still ongoing.

{{00:05:23}}
The Russia Ukraine war is still ongoing.

{{00:05:26}}
And both of those regions
are commodity rich.

{{00:05:29}}
And there has been disruption
of course of shipping lanes.

{{00:05:32}}
And so things like that can actually
mean that you could find central banks

{{00:05:38}}
are hesitant to cut rates quickly
because rates are restrictive, but

{{00:05:43}}
once central banks have begun to cut
what they don't want is to reverse

{{00:05:48}}
course, they're more likely to hold.

{{00:05:51}}
But the impact of financial services
means that you now have a higher

{{00:05:55}}
cost of capital for your clients,
higher cost of borrowing, which in

{{00:06:00}}
one sense for lending institutions.

{{00:06:03}}
Net interest margins look better because
you have, you have high rates, but

{{00:06:08}}
higher rates also mean you could have,
for instance, more credit impairments.

{{00:06:12}}
Your customers to struggle to borrow
commerce or just be a bit slower.

{{00:06:16}}
And so I think there is
that direct implication.

{{00:06:18}}
The indirect implication is
what happens to your customers.

{{00:06:21}}
So working in a globalized
financial system, your customers

{{00:06:26}}
could be anywhere in the world.

{{00:06:27}}
They want to move their
money to somewhere else.

{{00:06:29}}
They want their investments to be global.

{{00:06:31}}
But in a world where there are
investment restrictions, in a world

{{00:06:35}}
in which operating companies face
supply chain uncertainty, Distribution

{{00:06:40}}
networks could be disrupted.

{{00:06:41}}
I think all of those things
just dampen business.

{{00:06:45}}
And the role for financial institutions
I think is obviously to be nimble

{{00:06:51}}
help your customers adjust be aware
of everything that's happening.

{{00:06:54}}
And then I think also there is a
scope to provide advisory services.

{{00:06:59}}
You know so because financial
institutions work with a lot of companies.

{{00:07:04}}
You have a sense of, what could be risk
diversification or mitigation strategies.

{{00:07:09}}
So I think there's a lot of challenges.

{{00:07:11}}
But for financial institutions,
there's also a lot of opportunities.

{{00:07:14}}
Wow.

{{00:07:14}}
Very interesting perspective.

{{00:07:16}}
I was thinking maybe
a way of finishing up.

{{00:07:17}}
One of the things I thought was an
interesting concept in your book

{{00:07:19}}
was the idea of the rise of big
tech vis a vis even nation states.

{{00:07:23}}
And I know one of the things that
is a dark humor in our sector is the

{{00:07:27}}
idea is could some of these big techs
actually replace the role of banks?

{{00:07:31}}
Could Amazon start becoming our bank?

{{00:07:32}}
How do you see the relationship between
some of these really giant growing

{{00:07:36}}
technology companies, especially as
technology is moving the pace that

{{00:07:38}}
it is relative to nation states
that, as you mentioned, sometimes

{{00:07:41}}
they're very slow to make adjustments.

{{00:07:43}}
Yeah.

{{00:07:44}}
I think one of the big
challenges to national financial

{{00:07:48}}
systems is the rise of DeFi,

{{00:07:51}}
decentralized finance.

{{00:07:52}}
So this would be utilizing technologies
like blockchain, where you could have

{{00:07:57}}
peer to peer financial transactions.

{{00:08:00}}
Now for a lot of central banks of
national governments, this is a

{{00:08:03}}
big challenge because if you have
a lot of private money, it makes

{{00:08:09}}
it harder for them to do monetary
policy, which is about manipulating

{{00:08:12}}
the price of the quantity of money.

{{00:08:14}}
And I think also when you look at
the growth of fintech generally,

{{00:08:18}}
The area that has already directly
impacted a lot of the established

{{00:08:23}}
banking system is around payments.

{{00:08:25}}
That's probably one of
the fastest growing areas.

{{00:08:28}}
If you, for instance, look at Kenya,
which has a payment system called M Pesa,

{{00:08:33}}
where people have mobile wallets, even
people who don't have bank accounts.

{{00:08:36}}
It increases financial inclusion, but
it's come about through private actors.

{{00:08:40}}
So you normally think it's actually
government's role to make sure people are

{{00:08:44}}
included in the formal financial system.

{{00:08:46}}
But actually it's happening via private
providers who find it to be lucrative.

{{00:08:51}}
The ultimate impact of M Pesa is
that it's actually raised Kenya's

{{00:08:55}}
productivity which means it's raised
Kenya's growth rate which is what

{{00:08:59}}
you want to see happen with financial
inclusion the translation of savings

{{00:09:03}}
into investment is very productive.

{{00:09:05}}
So I think there's a lot of ways in
which technology can actually help

{{00:09:10}}
bolster growth standards of living.

{{00:09:12}}
But as with everything the challenge
is around very powerful big companies

{{00:09:17}}
that could stifle competition.

{{00:09:19}}
So in my book The Great Economist.

{{00:09:22}}
Yes, all my recent books
have great in that.

{{00:09:26}}
I write about Joseph Schumpeter who came
up with the idea of creative destruction.

{{00:09:31}}
He said the most important thing
to ensure you have an innovative

{{00:09:34}}
ecosystem is to have competition
and financing for startups.

{{00:09:41}}
So you allow the big tech companies.

{{00:09:43}}
He was writing in the early 20th century.

{{00:09:45}}
So these are not big tech companies, but
they were big companies like US steel.

{{00:09:49}}
You can have them there, and you would
have, you need to have a system where

{{00:09:54}}
entrepreneurs and startups compete.

{{00:09:59}}
They could get bought by
the big companies, but they

{{00:10:01}}
challenge the big companies.

{{00:10:03}}
And it's this process
of creative destruction.

{{00:10:05}}
That's really good for
competition and for growth.

{{00:10:09}}
And so we are currently in an era of
very big tech companies, but we also

{{00:10:13}}
have a flourishing set of startups,
especially in fintech, I would say.

{{00:10:19}}
And I think that combination is
just like what Mark Twain said.

{{00:10:24}}
History doesn't repeat
itself, but it does rhyme.

{{00:10:26}}
We just have to make sure that we have
this ecosystem and competition framework.

{{00:10:30}}
That competition continues to be
healthy, and I would say, even though

{{00:10:34}}
we tend to look at big tech companies
and how dominant they are, like the

{{00:10:37}}
Magnificent Seven in the United States
the rate of churn, a big company stay

{{00:10:43}}
in the S&P 500 has never been faster.

{{00:10:46}}
There is a very quick process now of
competition and creative destruction.

{{00:10:53}}
So to me the early 20th
century led to the period of.

{{00:10:58}}
What we call the golden age of
economic growth in the media

{{00:11:01}}
post-war period, and I'm hopeful
this current era does the same.

{{00:11:06}}
Wow.

{{00:11:07}}


{{00:11:07}}
Very interesting and very well put.

{{00:11:08}}
I really appreciate those insights.

{{00:11:10}}
Thank you.

{{00:11:10}}
Thank you very much for joining
us, sitting down and sparing

{{00:11:12}}
a little time with us again.

{{00:11:13}}
I thought your keynote
was very interesting.

{{00:11:14}}
I think particularly apt
for our audience as well.

{{00:11:16}}
Thank you so much.

{{00:11:17}}
You're so kind.

{{00:11:18}}
Thank you.

{{00:11:18}}
Thank you for having me and thank you.

Hello, we're here at
Finovate Europe in London.

I'm David Penn, Research Analyst with
Finovate, and joining me is Linda Yueh.

She is Fellow at Economics
at Oxford University.

She's fresh off the stage
from her keynote address.

We're going to talk a little bit about
that, about her book, and some of her

Let's go ahead and start
off with your book.

The Great Crashes, Lessons from Global
Meltdowns and How to Prevent Them.

Now, in this book, you talk about
a three step framework that helps

people understand, recognize
early signs of trauma, and in some

Could you talk a little
about that framework?

And the first thing I should say,
the book is called The Great Crashes.

When economists say great,
they mean the opposite.

These are unfortunately, and we've
had a regular, I would say repeat

And so what I hope to do with the book
is to help at least spot the signs

and try to ameliorate the crisis so
they don't become global meltdowns.

Every crisis starts with a bubble
and bubbles repeat themselves mostly

You think this technology or in the,
Back in the 17th century or so, 16th

So basically you get a
Zubrin about prices go up.

And the real danger is if you pile in
because of FOMO, but you do it with debt.

Because then when the bubble bursts,
that's the second phase, the resolution.

And that's really challenging
because it depends on having credible

So for instance, the
International Monetary Fund says,

the first eight months
of a crash are vital.

And I write about Japan's real
estate crash in the early 1990s.

And it resulted in lost decades of growth.

The final phase is just
that, the aftermath.

How much are you leveraging,
which is the repayment of debt.

And then, how credible were the policies
that were used to resolve the crisis.

It was pretty long stagnant
for a long period of time.

And if you think about the global
financial crisis from 2008,

However, the dot com bubble, when it
burst in the early 2000s, resulted

So therefore, the aftermath is
very dependent on how a crisis is

resolved, but most importantly, how
much debt was initially involved.

Yeah very interesting
given that framework.

And as you look the current
environment, you talked about a

Are there things right now that you
would say this is starting to look

So one of the bits of advice I was given
is that you should predict the event.

And so I don't know what the next
crisis will be, but if I look at areas

where you see a lot of debt buildup,
I would probably single out China,

They have taken about two to three years,
and if they still haven't resolved the

So this is already going beyond that time
frame that I mentioned the IMS suggests.

And I think the reason I would look
at China is also because to have a

global impact not a lot of crises
would have a systemic global impact,

And so it lends to 175
out of 185 jurisdictions.

So it's would have a
pretty widespread impact.

Shadow banking is something that the
Bank for International Settlements

They're very worried about it
because since the global financial

crisis shadow banks such as things
banks A banks constitute lending

Shadow banks are just institutions
that don't have a banking

So think of these as could
be insurance companies.

It could be private
credit, anything like that.

So right now, half of the credit in the
world comes from shadow banks, and they're

And so that could be
another source of crisis.

So really, It could be
any number of things.

A book just came out, but the
hardback came out a year earlier.

And when the NASDAQ crashed in November
2021, the NASDAQ recovered, but private

And then of course Silicon Valley Bank
and those regional banks have failed.

So anyways, I'm going to stop because
any one of these things, Okay.

Happily, luckily, it's not a
great crash, but there's just a

just unfortunately pretty regular
occurrence of these kinds of crashes.

I want to stick with the financial
sector for a little bit longer.

Some of the things that people think
about right now in terms of potential

challenges, the geopolitical situation in
Europe and Asia and other places, as well

Join Linda Yueh, Fellow in Economics at Oxford University, as she discusses insights from her book 'The Great Crashes: Lessons from Global Meltdowns and How to Prevent Them'. In this episode, Yueh outlines a three-step framework for identifying and mitigating financial crises, discusses the current economic landscape including potential risk areas like China's property sector, shadow banking, and high interest rates. She also explores the impact of big tech and decentralized finance on traditional financial systems and highlights the importance of competition and innovation in fostering economic growth. 

https://informaconnect.com/finovateeurope/