One more financial crisis needed to awaken authorities: John Kay

Rishma Kapurmoneycontrol.comThe growing influence of politics on the financial sector is a big concern, says John Kay, FSIP and visiting professor at London School of Economics and Political Science.In a free-wheeling chat with moneycontrol.com, when he was recently in the city for the 6th CFA Investment Conference, Kay said a 2008 like situation seems unlikely in the near future. Past events including the Asian market crisis and credit crisis, he says, are all different in their immediate causes. However, they all had the same fundamental causes in terms of asset pricing, earning behavior and the subsequent price collapse."What concerns me is the combination of political power of established institutions together with a fear of power of politicians," he says.There always has been a pattern on oligarchy–a nexus between economic power and political power and the capacity to use economic power to gain political power which reinforces the latter in a vicious cycle, he says adding that this is true for the financial sector.Another common element in the previous crises has been that the explosive growth in the financial sector has come from secondary trading. And when a crisis erupts, it affects non-financial companies equally, and entails public money to undo the damage to the economy.The only solution to the repeated occurrences of financial crises is that the public needs to be aware of the costs of politicians’ short term approach to big problems ailing the financial sector.“I fear it actually needs another financial crisis or perhaps more than one crisis,” Kay says, adding that only it could make people realize that pushing the can down the road by politicians is not the answer to the problem.