Subprime fallout: Preparing for the next financial crisis | vox - Research-based policy analysis and commentary from Europe's leading economists

Helge: I'm watching. Is it going to happen? How deep is the banking crisis going to cut in economic growth? What kind of actions should companies and privates take? This week Citigroup announced that they will lay-off 45 000 employees to decrease its operating expenses. That's a huge number of people. What did Merril Lynch do? I guess the crisis is getting closer.

Subprime fallout: Preparing for the next financial crisis | vox - Research-based policy analysis and commentary from Europe's leading economists: "To reduce the chances of another subprime-like crisis without stifling innovation, financial market regulators should work to increase standardization of securities, especially derivate instruments, and encourage their trade on organised exchanges.

There is a natural tendency for financial regulators and supervisors to fight the last battle, looking for systemic weaknesses revealed by the most recent crisis. It happened after the 1987 stock market crash, during the Asian crisis, and again following the LTCM collapse. And it seems almost certain to happen again this time.

So, while it is surely important to examine the specific problems involving banking system off-balance-sheet activities, the quality of collateral used to back commercial paper, and the manner in which ratings are used, I believe that we need to look further."


Stephen Cecchetti
Barbara and Richard M. Rosenberg Professor of Global Finance at the International Business School, Brandeis University, formerly Executive Vice President and Director of Research at the Federal Reserve Bank of New York.

Helge: I learned today that banks are not willing to lend money to each others. Is there a cut-throate race for life and death starting?