Website review: PM - Central banks may cause second...
rodneyj43 discovered this in Politics
•1 reviews since May 4, 2008
geoplitics
•abc.net.au/pm/content/2008/s2229584.htm
People who like this website
StumbleUpon is the best way to discover great web sites, videos, photos, blogs and more - based on your interests.
Everything is submitted and rated by the community. Discover, share and review the best of the web!
Reviews of this website
rodneyj43 discovered 3 months ago- Although the rhetoric going on in the US is that the global credit crisis is all but over, many are saying that at best it is only on hold for awhile. And the only ones benefiting from the bailouts are the banks, not the bottom-level consumers. Central banks may cause second global credit crisis From the page: "DICK BRYAN: Central banks have to do what they're doing, because if they didn't there, would be a much more widespread financial crisis and the obligation is to keep the system flowing smoothly. STEPHEN LONG: Dick Bryan is Associate Professor of Economics at the University of Sydney. DICK BRYAN: The liquidity has dried up in global financial markets. Banks find themselves stuck holding mortgage backed securities. And the banks come crying to the central banks saying, â€oeWe don't have enough liquidity, we don't have enough cash.” Central banks therefore have a dilemma, do they say, â€oeWell banks, private banks, that's your problem, not our problem?” Or do the central banks muscle up and say, â€oeWell, at a bottom line, we've got to keep this financial system flowing, if the private banks are plugged up with mortgage backed securities, we've just got to take them off their hands and release some liquidity back into the markets.” STEPHEN LONG: What are the risks involved in central banks doing this? DICK BRYAN: Well I think that the risks that would be involved are if there is a long-term sustained downturn in mortgage markets, in house prices, that flow through to the values of mortgage backed securities. The caveat to that of course is that the central banks are saying, they're only taking AAA rated mortgage backed securities, and so they're only holding stock from banks that they feel pretty confident won't have this destiny. Look, the risk in the long run is that central banks can take losses on these mortgage backed securities. It's got to be a possibility. STEPHEN LONG: A risk thatâ€s growing as property prices fall in the United States, and experts discuss the prospect of a property price crash in the UK spreading around the world. Jocelyn Pixley from the University of New South Wales has written extensively on the psychology of financial markets and interviewed central bankers from around the globe as part of her research. She says the actions of the central banks show how bad things have become. And she says that privately, the chairman of the US Federal Reserve, Ben Bernanke, may be being guided by an ominous historical parallel. JOCELYN PIXLEY: We do know that he's done a lot of historical economic academic work on the Great Depression and on the fact that the banks didn't lend to each other and then a lot of banks folded in rapid succession in 1930. So, you know, maybe that is the reading, but he's not alone of course, because the Bank of England is likewise doing it. STEPHEN LONG: So the fear of the central banks is that we could have a repeat of the situation with the Great Depression, where because banks were so scared of what risk lay out there, they stopped lending to each other and had a major financial collapse? JOCELYN PIXLEY: Yeah. And the Bank of England was suitably shocked when they had their first run on a bank since 1866, with Northern Rock. But, you know, no one does know the future and so in many ways, it's quite nightmarish for central banks. And you know, the impact is on the other side, that some of the actual help that they're pouring in right now, can be a build up to yet another tricky product that's put out on the market. And it doesn't really control the amount of frightfully fancy products that keep being invented. STEPHEN LONG: In economics, it's known as moral hazard: bail out someone, and you only encourage them to take more risky behaviour in the future. "
