Today, there is a meeting at the NY Fed of 17 firms this afternoon to discuss changes in "Derivative Infrastructure" and Credit Default Swaps.
This morning, NY Fed President Timothy Geithner published this piece on the Credit Crisis in the FT:
"The world experienced a financial boom. The boom fed demand for
risk. Products were created to meet that demand, including risky,
complicated mortgages. Many assets were financed with significant
leverage and liquidity risk and many of the world’s largest financial
institutions got themselves too exposed to the risk of a global
downturn. The amount of long-term illiquid assets financed with
short-term liabilities made the system vulnerable to a classic type of
run. As concern about risk increased, investors pulled back, triggering
a self-reinforcing cycle of forced liquidation of assets, higher margin
requirements, increased volatility.
What should be done to
strengthen the system in the future? First, when we get through this
crisis we have to increase the shock absorbers held in normal times
against bad macroeconomic and financial outcomes. This will require
more exacting expectations on capital, liquidity and risk management
for the largest institutions that play a central role in intermediation
and market functioning. They should be set high enough to offset the
benefits that come from access to central bank liquidity, but not so
high that they succeed only in pushing more capital to the unregulated
part of the financial system."
The entire commentary is must reading . . .
The Soothing Fed Balm
We can reduce risk in the financial system
FT June 8 2008 23:30 | Last updated: June 8 2008 23:30
Geithner Urges `Unified’ Supervision of Finance Firms http://www.bloomberg.com/apps/news?pid=20601087&sid=apbKkXGo8fwM&
Geithner Pushes for Tougher Rules, Supervision to Prevent Future Crises
NY Fed chief urges global bank framework http://www.ft.com/cms/s/0/546b1604-3585-11dd-998d-0000779fd2ac.html