There's no doubt that recessions will occur in the future, but banks have learned their lesson, right? Industry Focus: Financials host Michael Douglass isn't so sure. Here's what he thinks investors can expect in terms of recessions and banking crises over the next 25 years.
A full transcript follows the video.
This video was recorded on June 25, 2018.
Michael Douglass: There will probably be at least two full credit cycles during the next 25 years, and at least one financials-induced recession, possibly two, and two to three full recessions. For context, we had three across the last 30 years. Because I do not believe that banks have fully learned the lessons of this last recession, at least one of those recessions will probably be caused by banks repackaging something into something else, reselling it to consumers or other banks, over-trusting algorithms that they did not adequately vet, and blowing up the financial system, or at least getting close.
To summarize this whole idea, this whole episode -- the financial system today has several problems, as it always has. One of them, fees, is solved, we think, long-term, by the invisible hand of private markets, because of technology. But the others -- irrational exuberance, shoddy betting work around algorithms, the goal of making a buck today no matter the cost next year -- will persist because they're human issues. I believe that no amount of the fanciest technology can ever really truly solve those problems, because the algorithms ultimately will look like us, to some extent. Any solution that we try to create, somebody will do something new, and that may ultimately end up undermining the entire enterprise.
I do not think we're going to enter into a time where we perfectly know who's going to default, or when we perfectly can predict the next credit crisis, or when we can perfectly prevent the next recession, because that's just not something humanity can do. But what we can do, hopefully, is make things a little bit better, a little bit cheaper, and a little bit more transparent, and a lot more democratized. That, I think, is a future we can all be excited about.
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