Risk Derivatives Summit : balance sheet reform is essential
Runaway credit growth was at the root of the crisis, and regulatory reform must start by clamping down on it, John Greenwood, chief economist at Invesco in London, told the Risk Derivatives Summit audience yesterday.
As in previous crises in the Nordic nations in the early 1990s and in Thailand in 1997–8, Greenwood said, the current crisis followed the pattern of a credit-driven asset bubble. "This is a classic feature of the build-up of a credit crisis – the best way to describe them is balance-sheet crises. Credit is used to drive up asset prices, until either the prices or the debt become unsustainable –
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