Financial crisis stabilising - Gupta

CRISIS STABILISING: Gupta (pictured) said the financial crisis was entering a phase of stabilisation. (Getty Images)

The global financial crisis is entering a phase of stabilisation, but its impact on the world economy will be felt for years to come, the former head of McKinsey and Co. said on Sunday.

“We are probably getting ahead of the game, whereas previously we were just reacting,” Rajat Gupta, former managing director of the global consultancy firm, told reporters at a summit in Dubai.

Gupta said coordinated action by governments around the world had helped take risk out of the market.

"I hope this will be a period of stabilisation," Gupta, who is also an independent director of Goldman Sachs, said.

Global financial markets have been decimated over the last few months as economies around the world slip into recession and credit markets freeze up.

Gupta said the ongoing crisis was caused by “too much leverage and way too little regulation" and that a "slightly" different regulatory system was needed.

“I do think that the financial industry may have gone a little over board in terms of leverage. CEO compensation will be getting a closer look," he said.

But Gupta cautioned that overregulation could also become a problem.

"I don’t think this crisis should be seen as a sign that business is not a source of good," he said.

Asked about Goldman’s performance, Gupta said: “The basic businesses of Goldman Sachs are extremely sound and it is a very well managed company... [but] no financial institution can efficiently operate under the kind of liquidity crunch that has hit the markets."

Goldman Sachs share price has tumbled 68.97 percent since the beginning of the year.

Asked about the decision to allow US investment bank Lehman Brothers go under, he said in retrospect it was easy to criticise the decision, but the knock-on effects it had were difficult to anticipate.

“It had enormous counter party risk,” he said.

Gupta is also an independent director of Procter and Gamble, AMR Corp. and Qatar Financial Centre (QFC). He has also served as the United Nations secretary-general’s special advisor on UN Reform.

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