Mark Mobius: Another Financial Crisis Is Inevitable

mark-mobius.jpgMark Mobius, the executive chairman of Templeton Asset Management’s emerging markets group has said that another financial crisis is inevitable since the causes of the previous one haven’t been resolved.

From a news report in the Financial Post:

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008. The MSCI AC World Index of developed and emerging market stocks tumbled 46 percent between Lehman’s downfall and the market bottom on March 9, 2009.

In the same speech Mark also warned that the “too-big-to-fail” banks have gotten bigger since the financial crisis.This is very true. More than 1/4th of all bank deposits in the U.S. are held by four “super banks” – Citibank (C), JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC).The table below lists the Top 50 banks by deposit market share in 2010:


Source: The Wall Street Journal

In addition most of the banking assets in the country are held by the top 20 banks. As the banking industry becomes heavily concentration competition suffers. We can only hope that Mark’s predictions don’t become true as the country is still reeling from the effects of the previous crisis.

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