The market price The Fed's interest rate-slashing response to this inevitable crisis is flawed and fraught with risk Larry Elliott in DavosThursday January 24, 2008The Guardian Davos is in a state of shock. Regulars at the talkfest in the snow in Switzerland are accustomed to turning up for a few days of mutual back-slapping, congratulating themselves on the robust state of the global economy and its potential for limitless expansion.This year the talk is of falling asset prices, of murky financial instruments that have burrowed their way deep into the system, and of the possibility - horror of horrors - that the global economy might be on the brink of a full-scale crisis.In truth, the sense of surprise is hard to credit, since everything that has happened was entirely predictable. For 25 years or more, the great and the good of the financial markets have been chipping away at the constraints that were put on them the last time they brought the global economy to its knees, ably aided and abetted by politicians, the international institutions and a battery of thinktanks supported by corporate interests.Get the government off our backs, they said. Let the markets work, they said. Regulation is the enemy of innovation and efficiency, they said. Politicians duly obliged and now, according to George Soros, there is a systemic problem the like of which we have not seen for 60 years.And now what do we find? Those self-same financial institutions, having made a colossal mess of things, are relying on the forces of darkness to bail them out. We're hurting, they say. Our losses are enormous, they say. We're too big to fail, they say.
Davos is in a state of shock. Regulars at the talkfest in the snow in Switzerland are accustomed to turning up for a few days of mutual back-slapping, congratulating themselves on the robust state of the global economy and its potential for limitless expansion.
This year the talk is of falling asset prices, of murky financial instruments that have burrowed their way deep into the system, and of the possibility - horror of horrors - that the global economy might be on the brink of a full-scale crisis.
In truth, the sense of surprise is hard to credit, since everything that has happened was entirely predictable. For 25 years or more, the great and the good of the financial markets have been chipping away at the constraints that were put on them the last time they brought the global economy to its knees, ably aided and abetted by politicians, the international institutions and a battery of thinktanks supported by corporate interests.
Get the government off our backs, they said. Let the markets work, they said. Regulation is the enemy of innovation and efficiency, they said. Politicians duly obliged and now, according to George Soros, there is a systemic problem the like of which we have not seen for 60 years.
And now what do we find? Those self-same financial institutions, having made a colossal mess of things, are relying on the forces of darkness to bail them out. We're hurting, they say. Our losses are enormous, they say. We're too big to fail, they say.
How the spreading of verbal haze changes
...murky financial instruments that have burrowed their way deep into the system
Only last summer these were "sophisticated tools of risk management"
