Big Bad Wolf of Financial markets – financial innovations


The more I read about financial market and reasons of the current crisis – the more amazed I am and the more I like this job. Such an entertainment!

Currently I read a CEPR report from 2009 about market regulation and so on, and I start admiring bankers even more. On the page 2 of the report we read: “While it was thought
that these [financial] innovations were beneficial because they transferred banking risk to nonbanking institutions, we have to acknowledge now that in practice they imported systemic risk from non-banking institutions and securities markets to the heart of the
banking system.”

Financial regulators looked at this process with a passive attitude and content that the risk is moved out from the banking sector. At the same time, credit agencies decided about the future of many companies grading their condition while being not entirely neutral and objective.

And further I learn about factors , p. 91: “underlying amplification mechanisms
that turned several hundred billion dollars of losses in the subprime mortgage
market into a multi-trillion dollar destruction of wealth.”

Even though I’ve read about this so many times and heard about this even more often, it’s really exciting to read further.

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About bzik2

A beginning central banker with a twist
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