Sees the Issue, But Not the Problem

The next crisis – and the decline of ‘safe assets’ | Christopher Papagianis.

The writer correctly points out an issue with our financial system. It is in a state of stable disequilibrium, but he believes the reason for the disequilibrium is that the system suffers from a shortage of “safe assets.” Could you not also look at this issue as there being too much money in the system? It makes sense that the we have too much money, because the central banks have been creating lots of money since 2008. One can create money out of thin air, but only a reputable entity with sterling credit can create safe assets, and we are fresh out of those.

Additionally, the writer implies that all of these financial firms need safe assets to capitalize themselves, and this is creating the shortage of safe assets. Perhaps the problem is that we have too many financial firms. By providing liquidity to all of these institutions, we have kept a great many of them alive. Banks need to fail. It’s how the system works. Since banks aren’t failing, the system is not working.

Too much money floating around, but not enough brains.

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