streda, marca 19, 2008

Magic Moments from ASC (3)

„Media and lots of financial market economists have so many different excuses for what´s going on. ´Subprime lender, off-balanced sheet vehicles, securitization, hedge fund´s leverage, FED´s policy of low interest rates, unreasoning fear (quote from Financial Times), bad ethics, credit crunch doesn´t really exist – it is a myth, a savings glad, it´s just an evaporation of confidence, when we bring back the confidence everything will be allright´.

These kind of things we hear day after day. But these can´t be the actual reasons for the crisis because these are the symptoms that we see. We should adress a core issue. And for that we look at DeSoto´s book „Money, Credit, Economic Cycles“. Banks are not true financial intermediaries. They create deposits and loans out of nothing as we know. That´s what market participants miss. They look just on symptoms and not on critical issue.

...Liquidity is for them the answer to anything. It can´t be about liquidity, it is a sort of characteristic. We don´t think it can be necesserally quantifiable. Liquidity means how easily you can sell good or asset. It´s a relationshisp between money and asset. ...How can liquidity expansion happen? We´ve used an austrian framework for banks. The first look is on FED and what it is doing with monetary base. There were a huge expansion of credit in last ten years.“

- Jeffrey Cleveland: „Anatomy of Financial Crisis“

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