According to Bloomberg there were 5 big winners during the credit crisis:
1) Historians over economists. Instead, people turned to lessons of history to make sense of it all. Niall Ferguson, a history professor at Harvard University in Cambridge, Massachusetts, is now listened to on economic issues. Likewise Nassim Taleb, a professor of risk engineering whose book “The Black Swan” dipped into the history of rare, high-impact events to describe how we didn’t see this storm brewing. At this rate, investment banks will be building small, dusty libraries in the basement, and filling them with in-house historians. It will be a long time before economists are listened to again.
2) Hedge funds over bankers. If Lehman Brothers Holdings Inc. had a dollar for every time someone warned that hedge funds would bring the financial system to its knees, the bank wouldn’t have gone bust. While hedge funds took plenty of criticism, and are still facing calls or more regulation, the simple fact remains that they didn’t blow up the way many predicted. It was the mainstream banks that caused the crisis. That will influence regulators and investors for many years. Whatever people say now, it’s the banks that will face more scrutiny, not hedge funds. The result? The lightly regulated, cash-rich hedge funds will grow in importance, while the tightly controlled, capital- constrained banks stagnate.
1) Germany over Britain. For much of the past decade, the fast-growing U.K. was gaining on Germany for the role of Europe’s most influential nation. Almost 20 years after reunification, fears of a resurgent Germany turned out to be baseless. It was Britain, with its financial center, that was emerging as the leading European nation. The credit crunch will throw that into reverse. The U.K. is condemned to a decade of struggling with a fiscal mess, while Germany should bounce back quickly from the recession with an export-led recovery.
4) The right over the left. The credit crunch was probably the perfect moment for left-wing, anti-capitalist and anti-globalization movements to make their mark. After all, if this wasn’t a failure of capitalism, it is hard to imagine what might be. Vladimir Lenin would have led the overthrow of a dozen governments presented with an opportunity like this. But his heirs on the left failed to advance any cogent arguments. Nor did they develop any alternatives to free-market, finance-led capitalism. The plate was empty, but the anti-globalization movement failed to step up to it.
5) Frugality over extravagance. The nub of the credit crunch was an attempt to load more and more debt onto people — mainly in the U.S. and U.K. — whose real wages were stagnant or growing very modestly. That will be thrown into reverse, and for the next decade, people will be paying down debt rather than accumulating it. House prices will be subdued as finance remains scarce, and household budgets will be tight. The result will be that companies will thrive if they offer value, drive down costs, and make themselves the lowest-cost supplier. Anything that smacks of luxury will suffer. Think about McDonald’s Corp. triumphing over Starbucks Corp. — and then multiply that effect a thousand times over.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.