|Economically what have you done??Page 1 of 1 |
Well youngun, why don't you share what you have done to economize back east there in the land of plenty.
Did you vote? I did, not that my vote counts for sh!t here out west in the compost heap.
And before you jump all over me with your winning personality, perhaps this research will enlighten you as to the magnitude of the issues we face.
After an unavoidable period of very high volatility in equity and debt markets, this will eventually, end as the deleveraging storm abates and more normal valuations take hold. But the extent of the damage to household assets, including pensions (and hence consumption and business investment) will have a significant affect on the depth, scope and length of the global recession.
A variety of coordinated interventions from central banks, the International Monetary Fund, large holders of reserves and others can help reduce the extent of an asset deflation overshoot and reduce the burden that is placed on fiscal policy and stimulus to restore economic growth. Specifically, we need to use the circuit breakers we have to try to limit the spread of the asset deflation and its collateral damage.
Well-targeted fiscal stimulus programs will be needed, provided they are combined with credible plans to restore fiscal balance and the public sector balance sheets over a period of time. The latter will be painful, but necessary.
On the longer-term agenda of reform of the global financial system, a thorough analysis with extensive data and multiple inputs is needed as a foundation. There is no shortage of potential contributing factors: incomplete and fragmented regulation--specifically, unregulated mortgage origination--feeding the highly profitable securitization business; global imbalances and a number of factors that led to a low inflation/low interest-rate environment; a variety of issues associated with incentives combined with incomplete and asymmetric information; transparency problems associated with the complexity of the assets; and the fact that some derivatives are not traded, preventing the netting out of counterparty risk. These deserve, and will receive, serious attention as an analytical foundation for the design of more effective domestic and global regulation and oversight institutions.
But there is an important issue for which the current analysis is very incomplete. It seems clear, at least to me, that the financial system dynamics produced a steady rise in systemic risk (roughly the extent to which individual risks are positively correlated). This means that risk is not stationary, but shifts, posing a large challenge for accurately modeling risk.
Further, it appears that this rise in systemic risk either went unnoticed or was not acted on--or some combination of the two. The evidence is that every major financial institution held problematic assets, and was highly levered and exposed to extreme financial distress. As a result, they suffered simultaneous and major damage, with its attendant effects on financial-sector performance and on the economy. It appears that financial innovation that was believed to redistribute and reduce risk, in this case, mainly hid it instead.
The issue of whether we know how to measure systemic risk and to detect the dynamics of its evolution is centrally important with respect to, first, whether investors and institutions can be counted on to take protective action, and whether the system can be made to be somewhat more self-regulating; and secondly, from a policy point of view, whether global early warning systems (as proposed by British Prime Minister Gordon Brown) and policy intervention based on a reasonably objective assessment of rising risk of instability, are in fact feasible.
DO inspire us with YOUR wisdom on how "things" are ever going to be "normal" in this global recession in which we find ourselves.
Sleep well lad.