Another financial crisis around the corner

Mark Mobius, executive chairman of Templeton Asset Management's emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven't been resolved.

“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 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 3 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% between Lehman's downfall and the market bottom on March 9, 2009.

“With every crisis comes great opportunity,” said Mobius. When markets are crashing, “that's when we're going to be able to invest and do a good job,” he said.

The freezing of global credit markets caused governments from Washington to Beijing to London to pump more than $3 trillion into the financial system to shore up the global economy. The MSCI AC World gauge surged 99% from its March 2009 low through May 27.

The largest U.S. banks have grown larger since the financial crisis, and the number of “too big to fail” banks will increase by 40% over the next 15 years, according to data compiled by Bloomberg.

Separately, higher capital requirements and greater supervision should be imposed on institutions deemed “too important to fail” to reduce the chances of large-scale failures, staff at the International Monetary Fund warned in a report on May 27.

“Are the banks bigger than they were before? They're bigger,” Mobius said. “Too big to fail.”

The above article has been sourced from Bloomberg News.

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