World leaders fear contagion, the final act in financial crises
The fear of unsustainable debt levels has spread from Greece, first to Spain and Portugal, then to Italy and now to France, Austria, even Finland. Investors who had been pleased to put their money into dodgy assets now fear everything but the very safest. In the old days, they fled to gold. Today, the equivalent of gold is German bonds. Private investors are selling everything else. There are few buyers beside governments and the European Central Bank. The possibility of defaults, of bank closures, and of global recession grows by the day. How did we get here?
Contagion is what the great Hyman Minsky and his populariser, Charles Kindleberger, call the final act in financial crises. According to Minsky there are five stages between bubble and bust. The first is displacement or innovation: something changes that makes a certain
atimoshenko
So is there any point at which finical markets are working properly and creating value for the broader economy? From the article it sounds as if financial markets have only two modes – suffering from a current crisis or setting the stage for the next one.
Tom Streithorst
The efficient market theory says that security prices are always right. That clearly doesn’t fit the evidence. However I don’t think that suggests that they are always wrong.
What it does suggest is that unregulated financial markets do not best allocate societal savings, which is supposed to be their job.