Sunday, June 24, 2012

BIS warns about moral hazard and threat of second leg down

The Bank for International Settlements said in its annual report that the world economy remains out of balance, with advanced economies struggling with debt and emerging economies growing strongly but facing risks of their own version of boom and bust.
The BIS – an intergovernmental organization of central banks based in Basel, Switzerland – said it's key for governments to make banks take responsibility for their losses and force them to rebuild their finances. Meanwhile, the threat from risky bank behavior is growing again.
"The world is now five years on from the outbreak of the financial crisis, yet the global economy is still unbalanced and seemingly becoming more so as interacting weaknesses continue to amplify each other," the BIS said in its 82nd annual report. 
"The goals of balanced growth, balanced economic policies and a safe financial system still elude us."
Read it at The Huffington Post
Bank For International Settlements Report: Big Banks Take Risks Expecting Taxpayers To Cover Losses
by David Mchugh


Ralph Musgrave said...

We have a credit crunch caused by excessive and irresponsible borrowing, and what do the dimwits in charge of Western economies do? They cut interest rates so as to encourage more lending and borrowing. I couldn’t have thought of anything that stupid if I’d tried.

George Osborne, Britain’s finance minister, has told banks to repair their balance sheets, at the same time as telling them to lend more. Next he’ll tell bank CEOs to stand up and lie down at the same time.

The lunatics have taken over the asylum. But I’m being negative. Now I’ll be constructive.

There’s not much Eurozone countries can be because of the inherent defects of a common currency. Britain is constrained by its relatively high rate of inflation. As to the U.S., all it needs to do is adopt the MMT cure, i.e. create new money and spend it into the economy. But the lunatics in Congress won’t stand for that.

So we’re all doomed.

Unforgiven said...

Ralph -

What's causing the inflation in the UK?

Sounds like biz is hoarding cash over there too. (Supposedly FX fears?)

David said...

They cut interest rates so as to encourage more lending and borrowing. I couldn’t have thought of anything that stupid if I’d tried.

Yeh, and when they can't goose up the bubble again thereby, the anointed experts throw up their hands and say "We're in a liquidity trap." It sounds so technocratic and value free like when the weatherman says "We're experiencing an inversion cycle."

I'm tempted to say to these very smart people that we're not in a "liquidity trap," we're actually in a stupidity trap. But I'm just an economics naif, so what do I know.