Capital inflows plus risk appetite equals crisis, conference hears

Competition with bond markets raises danger of crash

bubbles-tete

Crises are the result of foreign capital flowing into a risk-hungry and competitive financial sector, an audience at the London School of Economics (LSE) heard yesterday.

Speaking at a conference held by the LSE's Systemic Risk Group, academics Mark Copelovitch (University of Wisconsin) and David Singer (MIT) described a provisional finding that current account deficits – representing an influx of capital to a country – were, as generally thought, linked to the build-up of an asset price bubble

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