Saturday, June 6, 2009

Listen to the Lady

An extract from the article in the FT on Angela Merkel's criticism of Western central banks:

"Aides say Ms Merkel’s concern about the expanding remits of the Fed and the Bank of England is genuine. She does not blame the implosion of the subprime mortgage market for the economic crisis. She does not see securitisation as the culprit. Rather, she thinks the loosening of monetary policy under Alan Greenspan’s Fed chairmanship fuelled the creation of asset price bubbles and encouraged excessive leverage within and beyond the financial sector.

This risky policy, she thinks, was supported by a US government that also rejected any calls – including from Germany when Berlin was chairing the Group of Eight industrial nations in 2007 – for tighter regulation of financial markets. Ms Merkel “sees the huge amounts of liquidity being pumped into financial systems with some concern. She is worried that some of the unconventional action being deployed by central banks cannot be easily reversed,” says one confidant. “We do not want to be fuelling a new bubble. Another crisis like this one and the west will be wiped out.”"

Probably the most succinct examination of the causes of the economic crisis I've seen. I also largely agree.
If only the US Government would admit its past mistakes in expanding liquidity, promoting home ownership without adequate circumspection etc., we could get on with fixing the problem so something like it never happens again.
Also, when will Western finance ministers central bankers and banking and financial regulators come out and tell us exactly how things will change in future? We're still fighting old fires as far as I can see ...

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