FSA/Lord Turner: Debt, money and Mephistopheles - How do we get out of this mess?

06 February 2013

Having provided the background to the crisis in his address, Lord Turner went on to outline the three main conclusions he had come to about the issue.

Having provided the audience with the background to the crisis, Adair went on to outline the three main conclusions he had come to about this issue.

• Firstly, that leverage and the credit cycle are important. The level of leverage in the real economy and financial system are crucial variables which were dangerously ignored pre-crisis.
• Secondly, that arguments for free markets do not apply to banks as they do to other sectors. They need to be tightly regulated.
• Thirdly, that financial crises resulting from excess leverage are followed by long periods of deleveraging which depress nominal demand.

In his address, Adair said: "We must think fundamentally about what went wrong and be adequately radical in the redesign of financial regulation and of macro-prudential policy to ensure that it doesn’t happen again. But we must also think creatively about the combination of macro-economic (monetary and fiscal) and macro-prudential policies needed to navigate against the deflationary headwinds created by post-crisis deleveraging."

Full speech

Speech slides

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