 And good afternoon to you all. It's good to welcome you to this IEA webinar. We're delighted to be joined today by Dr. Linda Yu, CBE, who is a fellow in economics at St. Edmunds Hall, Oxford University adjunct professor of economics at the London Business School and regular contributor to the global media. Linda is also, of course, an author and her address today will focus on her new book, it's scarily titled appropriately for the day that's in it. The great crashes, lessons from global meltdowns and how to prevent them. This is particularly appropriate given there are rumbles in the financial system. There are a matter of some concern, losses on commercial property, particularly offices are huge, while those who bought expensive government and corporate bonds are nursing even larger paper losses. And then there are risks in China's property sector. Lot to discuss there. So Linda will speak for maybe 20 minutes with her presentation. We'll then go to Q&A with you, the audience. You'll be able to join the discussion using the Q&A function on Zoom, which you should see on your screen. Please feel free to send your questions in throughout the session as they occur to you. We'll curate them on this end and discuss them with Linda. You can also generate, you can also participate in the discussion via Twitter or NowX, as it's called, using the handle at i-i-e-a. A reminder of today's presentation and your label on the record. So with that, a very warm welcome, Linda, and I hope you don't frighten us too much. Over to you. Thank you very much, Dan. I hope so too. So thanks very much for inviting me to give this talk. On my latest book, The Great Crashes, lessons from global meltdowns and how to prevent them. So the first thing I'm gonna say is, it's always a delight to speak to an Irish audience. And thank you for tuning in because you did see the title of the book, The Great Crashes. And when economists say great, they do mean the opposite. So with that, I'm gonna share my screen and share a few lessons from a century of financial crises so that we can do what the subtitle of my book hopes we can do, which is we won't be able to prevent another financial crisis. However, we don't have to have another global meltdown that brings misery to millions of people. It's the preventing the global meltdown that's the aim of the lessons from this book. So with that, let me share the book. So as I say, it's really a two-part subtitle and I hope it's the lessons that we can focus on in my presentation. But of course in the Q&A, very happy to talk really about any aspect of The Great Crashes. So let me now move to the next slide, which is, I always start with this quote by J.K. Gallagher. He is a great economist. He wrote a book called A Short History of Financial Euphoria. And in many ways, my book is modeled on his book in terms of being short, brief and tell stories about the crashes that we have been through. And there have been some very colorful characters throughout. So his book actually finishes with a 1929 great crash, which is where my book picks up. So it's very fitting to quote him to start. So Galbraith said, there are a few fields of human endeavor which facilitates in the world of finance. Past experience to the extent that it is part of memory at all is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present. So despite human nature, perhaps not wanting to think that Buss always follows boom, it is still worth trying to encourage people to learn from past memory and to learn from history. And that's what I do in the book. I cover 10 great crashes. I said that after the 1929 great crash, I won't have time to cover all of them. So I'm going to cover a couple, which I think has resonance to today. So of the 10 crashes that I cover, I cover three generations of emerging markets crisis. So those start in the late 70s, early 80s, which of course does have echoes to today. And I actually finish with the Russian-Ukraine war and the supply-side shock. So I'll touch upon that at the end. But the couple of episodes from history I want to highlight are the US things and loan crisis because we're looking, as Dan said, at a worries over commercial real estate. And I'm also going to touch on the dot-com bubble, mostly because there's just a lot of stories from that era, but also because we're in the midst of a tech crash as well. So before I draw the lessons from history I want to tell you a little bit about these episodes. I just also want to remind you of a quote by Mark Twain, who said, history doesn't repeat itself, but it does rhyme. So we look for the rhymes and we draw our lessons carefully. The US savings and loan crisis of the 1980s. So the parallel to today is from the collapse of the mid-sized US banks in the spring of this year. And they were regional banks starting with Silicon Valley Bank. And had the lessons not been learned from the 1980s, there was a risk that those bank crises could have had much wider implications because that's what we learned in the SNL crisis. It doesn't matter if you're a mid-size or a regional bank or in the case of savings and loans, they're actually building societies. The collective failure of the entire sector, so individually small but in aggregate huge, led to the worst systemic banking crisis since the 1929 Wall Street crash, which is still the crash that lots of crashes are compared against. At least one SNL failed in each of the 50 states. So what happened? How did the SNLs go from being featured in a wonderful life? So that's the movie poster where Jimmy Stewart, he uses some of his honeymoon funds to rescue the local building society because it was so important as a mortgage lender to SNLs becoming part of the junk bond market and getting wrapped up with people like Michael Milken in the 1980s. And he was one of the inspirations for Gordon Gekko in the film, Wall Street, which captured that your tagline is really just good. So what happened? Well, from the post-war period, SNLs had a great business model known as the 363. They would pay depositors 3% interest, they would lend out mortgages and earn 6% interest, and they would be on the golf course by 3PM. However, the 1970s supply side oil shocks introduced high inflation, high interest rates, and they stabilized the sector. And they really struggled and because they have federally insured deposits, they started to take more risks. They went into commercial real estate and they used junk bonds as financing. So they bet the house and they literally lost the house, lost everything. And so SNLs were not built out until the early 1990s. And that, as I say, does have lessons for what happened in the U.S. today and as I'll go through, the U.S.'s rapid response to the crisis earlier this year gives a sense that the mistakes of the 1980s, which was a very slow response, and of course, kicking the can down the road worsened the ultimate cost of that rescue. The second episode I wanna touch on is the dot-com crash of 2000, 2001. So just think back to the 1990s. I mean, it was incredible, this idea that you could buy something without having to go to a physical store. You could buy it on the internet. So for those of you who are not digital natives, you may know what I'm talking about. For everyone else, just look up dial-up modems. So investors were hugely enthused and they got internet stocks, e-commerce. This was gonna be transformative. The NASDAQ, which is the U.S. tech focus index, rose by 440% in the late 1990s. And it was such a rise that irrational exuberance was coined at the time where central bank governor, Alan Greenspan, and economists like Bob Schiller, who wrote a book on irrational exuberance, they were concerned it was a bubble, and not a fundamental increase in value. And ultimately, it was both, but timing-wise, the internet companies were probably too early and it was definitely a bubble, which burst in 2001. The entire sector collapsed in 18 months. So a lot of the stories around the dot-com era include pets.com, this is the best known failure of the time. They spent millions on the sock puppet, making it a star in the U.S. Super Bowl half-time show where Beyonce performs. They had the sock puppet there. They were spending millions, hardly ever seeing block on their profit and loss, on their balance sheet. They were pouring in money to gain market share. And so many people wanted to become dot-com millionaires that the guys who started garden.com, apparently didn't know much about gardening and didn't even like gardening as a hobby. But there was a huge piling in, in case of FOMO, Fear of Missing Out, which is a trade, of course, of bubble through history. So the reason I'm also focused on pets.com is that the 50% owner of pets.com was Jeff Bezos' Amazon. Pest.com failed, but Amazon became a huge winner from the dot-com crisis. Amazon is a company with 70 millions on sock puppets and websites that could unload because people didn't have broadband. He was very focused on costs and invested in his core strategy, which gained him market share. So he became one of the biggest winners from the dot-com crash, even though the NASDAQ only recovered in the mid-2010s to where it was before the crash. So a couple of illustrations of the various crises that I write about, but in the interest of time, I'm gonna focus on the lessons from these and other episodes. So to prevent the worst of the next global meltdown, I think relies on three things, and these are the three phases common to every crisis. So one is euphoria, this belief in exuberance, and I suppose the lesson here is you may fear missing out, and it's hard to tell if something is transformative or a bubble, but just make sure it's not done with too much debt. So the second phase of every crash, the bubble and then the crash, is credible and quick policies to resolve the crisis, like what I just mentioned, the US government did earlier this year. Now, of course, the actions taken to solve one crisis often lays the groundwork for the next crisis. So one of the reasons why the dot-com bubble only resulted in a mild recession when it burst was because the US Fed cut interest rates very quickly to support the economy. So that fueled the housing bubble because most households didn't want to invest in stocks, so they ended up going into housing. And then the third phase, which is common to all crisis is the aftermath, which depends on the first two phases. If there's a lot of debt and deleveraging, then it takes longer to recover. If the banking system is involved and fails, then that is the worst type of crisis and restoring confidence. So the credibility of policies makes a huge difference in terms of the aftermath. So for instance, the International Monetary Fund says the first 10 months after a crisis are crucial. If you take more than four years to resolve a crisis, you're really in trouble. Japan's real estate crash or the early 1990s that I write about, the Japanese government took eight years and that contributed to its three lost decades of growth. So those are the three phases of any crisis and I want to just illustrate them a little bit more with some examples. So I mentioned that we are actually in the midst of a tech bust at the moment and that came at the end of 2021. So as you can see, the high flyers of 2021 compared to the dot com era peers, they also had, for the most part, similar if not higher valuations. So when the bubble burst, a lot of the lessons from the dot coms are probably very relevant today. The second example I want to give is to illustrate credibility. I'm actually gonna give two examples. Both the UK and Mexico had a currency crisis in 1992 for Britain in 1994, which was the Tequila crisis. After the UK crashed out of the ERM, the European exchange rate mechanism in 1992 alongside other European economies, its economy actually grew by selling more in the back of a weaker currency. In Mexico, it resulted in a deep V-shaped recession and a rescue by the United States with a couple of international organizations. Why is this? After the UK crashed out of the ERM, there was no doubt about the Bank of England or the Treasury, the institutions retained the credibility. Investors didn't have that confidence in the Mexican institutions, which contributed to a much worse post-crisis outcome. But the second example of credibility that I'm going to use, and I think this is one that's near in time and I think quite familiar, which is ECB President Mario Draghi's whatever it takes speech. So in the book I write about the fact, I was actually there at Lancaster House when he gave the speech on the eve of the blind olympic. Mario Draghi said, we will do whatever it takes to safeguard the euro and believe me, it will be enough. That speech immediately had an impact on markets and narrowing the spread between the German bonds, for instance, and a Greek government debt. The minute his speech happened and aid went up to him, Christine Lagarde actually tells the story her most recent Financial Times interview and aid went up to him and said, markets are moving. And he said, oh really? And so this speech, it was viewed as credible. So Timothy Gartner who was US Treasury Secretary actually went to the ECB and asked what happened with the speech, how was it crafted, what's behind it? And it turned out that Draghi actually ad-libbed the phrase, he made this up, whatever it takes. There wasn't actually anything at that point behind it but he did have political support behind him. So Angela Merkel, another eurozone leaders said the political world is there to support the euro. That and they launched a additional bond buying program called the OMT, but the OMT was never actually deployed. It was the speech and the credibility that turned the corner on the euro crisis. It continued to go on of course, but July 2012 marked a turning point, as you can see there in terms of the stress in bond markets. So the aftermath, I just wanted to show you bank failures. We have had unfortunately quite a high concentration of bank failures in the last 50 years or so. And the bank failures result in the worst economic outcomes. So not every financial crisis result in a recession you saw there, the ERM crisis for the UK that didn't, the UK was already in recession but the economy rebounded after that. But where a crash brings down the banks, it does have the worst outcome. So we have had a lot of bank crises over the years and that's why the amount of debt that's used in fueling euphoria is so important. So I want to spend my last few moments on the next great crash and on, I think a surprising lesson that I ended up with after finishing the book which I call the Great Reset. But first, the next great crash. I'm going to say from the outset that advice I was given as a young economist was, if you're going to predict a crash, you should either predict what it is or when it will happen, but never both. We've already had US regional banks failures this year. As I mentioned, we've had a tech crash now since the end of 2021. Commercial real estate is now in focus. China, that's the picture of Shanghai, it's not the next crash. But the reason I focus on it is because it's overdue for a crash and if China were to crash, it's likely to be a great crash, the kind of crash that generates economic misery for millions. So China is unusual in having grown except for one quarter during COVID, even leaving aside the accuracy of statistics. It's never had a great crash in about 40 years. It has had financial crises, but it hasn't had one that other economies have experienced with some regularity. And as we have seen from history, no country is immune from the cycle of boom and bust. And China's property sector, which I think the skyscrapers here illustrate, capture that pretty well, means that has a very highly indebted sector which is linked to the banks making China look precarious because of the amount of debt incurred by property developers whose entire industry accounts for staggering 29% of national output. Those property developers alone, their debt is equal to about a third of Chinese GDP. So that gives a sense as to why China looks precarious and could be the next great crash. So why do I think you will have global meltdown implications? This is one of the reasons. China is the biggest official lender in the world. It lends more to the world than the World Bank, the 22 rich countries that make up the Paris Club and the money owed to the IMF. So China accounts for as much as a fifth of GDP for low income countries. And those countries are already at risk of debt distress. So should China have a crash and its money start to either freeze or banks are to recall these loans, then I think the potential for spreading to become a global meltdown affecting developing countries triggering an emerging market crisis is a risk that we should just all be very aware of. So in the last few moments, I want to focus on a lesson that I don't think I thought I would be writing about when I started writing about a century of financial crises, which was the pandemic was such an unusual crash that I ended up drawing some unusual lessons from it. And the great reset is a term that has been bandied about and this is my version of it, which is during the great reset, there was a feeling that global public health would supersede concerns about the environment. But it actually turned out that global public goods like health and the environment were just as important and really became a point of focus even by the IMF who normally are very focused on fiscal discipline, but they have estimated that you could get more output, more jobs and more green infrastructure if governments were to borrow to invest, to grow into a greener and also fairer world because they track all the policies of governments during the pandemic and those that supported people and viable businesses were able to recover faster from the pandemic. So I think one of the resets is can we grow in a different way in a fairer way and in a greener way? And one of the reasons we do need to think about this differently is because we've also seen the behavioral change during the pandemic dubbed the great recession, a resignation. So this is my favorite survey to capture that. It's a survey of American workers who was asked if your boss asked you to come back to the office five days a week, what would you do? 57% would comply in return. 35% would come back, but they'll be secretly looking for a working-for-home job. And then my favorite stat, 6% would just quit on the spot without another job. So the behavioral changes over the last few years gives me hope that we can avoid repeating some of the worst mistakes of the last century. And we don't necessarily have to keep growing in the same way, incurring the same type of cycles of behavior. We can actually, I think, begin to behave differently. And so for me, that was the most satisfying lesson and an unexpected one from looking at 10 episodes of great crashes over the past century. Thank you very much for your attention. I'm going to stop sharing my slides.