Is the crisis consuming global markets merely part of a fundamental shift of power from the United States to emerging economies in China and the Middle East? As reported this week by Katherine Griffiths of Great Britain’s Telegraph.com, Steven Green, the Chairman of HSBC Bank, answered this question in the affirmative at a financial conference in Dubai.
Mr. Green said that the underlying trend of movement from west to east would “not be derailed. The rebalancing of the global economy towards Asia, home to over half the world’s population, and its implications for the Middle East, is the shift that will affect financial markets most profoundly.” He pointed to the implosion of sub-prime mortgage lending in the United States as the flash point but claimed that it was far from the only villain in town. “The complexity and opacity of certain financial instruments reached the point where even senior and experienced banks had trouble understanding them, let alone investors,” Mr. Green said.
The HSBC Chairman criticized the bonus culture in the US financial sector, “which has so often encouraged too much opacity and excessive risk-taking.” He claimed that the “high leverage model of finance is bankrupt.”
The same thoughts were echoed by John Thain, the Merrill Lynch Chief Executive, who was also speaking in Dubai. According to Simeon Kerr and Greg Farrell of Financial Times, Mr. Thain said that the Middle East would not escape the global slowdown, but Merrill Lynch, operating from its Dubai base, would continue to seek growth opportunities across the region, especially in wealth management and trade. Merrill Lynch is expanding its presence in the Middle East by launching services in Saudi Arabia, and it plans to open offices in Kuwait and Qatar by the end of 2008. Merrill also has a long-standing presence in Lebanon and Bahrain.
These developments could very well spell the end of Wall Street’s dominance in world financial affairs. If that happens, then the current round of job losses on Wall Street may well be permanent. When the recovery comes, it is likely that Wall Street financial firms will never regain their former size, influence, and glory. In other words, Wall Street’s greed may have killed the goose that laid all of those golden eggs.