Wednesday, August 22, 2007

Don’t blame capitalism
For the recent bumpy ride. Blame central banks, says Ambrose Evans-Pritchard:
It was they - in effect governments - who intervened in countless complex ways to push down the price of global credit to levels that warped behaviour, as the Bank for International Settlements (BIS) has repeatedly noted. By setting the price of money too low, they encouraged debt and punished savings.

The markets have merely responded with their usual exuberance to this distorted signal.

So while the investment boutiques - Bear Stearns, Morgan Stanley, Deutsche Bank, Lehman Brothers - may have pushed a toxic product (a rash of lawsuits will decide), this occurred in a context where policy error had bent incentives.
From LRC.

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