Another financial crisis in the offing

A U-shaped, V-shaped, W-shaped recovery? Leave the economic analysis aside. From what I can infer, there will definitely be another financial crisis, may be not on the same scale as the previous one; but it will happen for sure. Dead sure. Period.

Here goes the rationale behind my argument.

Tell me the name of countries which, subsequent to the horrific meltdown that we witnessed last year, actually reformed their regulatory system, tightened their grip on the so-called credit rating agencies who, if I may say, are to blame for the meltdown as much as the banks who sold packaged exotica (CDS, CDOs, what not!) to investors. There's just one country. The Netherlands. That is it. No other country has implemented any legislation to curtail the unfettered freedom given to banks and financial institutions, to control the insane payouts to corporates and to curtail financial wizardry.

Having said that, I will add that the window for action is shrinking - and that too at an incredibly fast pace.

In the US, considering the clout wall-street wields on capitol hill and with bankers spending millions of lobbying dollars to stall attempts to tighten regulatory grip, I seriously doubt the outcome of promises given with regard to teach them a lesson and to 'prevent another crisis'.

Interestingly, at the same time, wall street investment banks seem to have conjured up another big idea to make money. This one involves 'securitization' (ironic term I'd say!) and repackaging of life insurance policies and selling them to investors like big pension funds (again!) - needless to say, with the help of credit rating agencies.

So, even as Washington debates increased financial regulation, bankers are scurrying to concoct new products, quickly returning to their old ways of chasing profits with complicated new products. And given the persisting hectic lobbying, there seem to be little chances of tightened regulation in the future.

In short, it is a quick return to the good old days for wall street. What I fear the most is that all this stimuli, these hopes of a recovery, everything might vanish into thin air.

It will be a W-shaped recovery after all.

-Sumeet Seth (sumeets29@gmail.com)