One of the puzzles of the 2007/8 credit crunch is how a relatively small loss of capital in a tiny market segment was transformed into a global financial crisis costing close to $1 trillion and sending the world economy into slowdown.
Key players in this tragedy are a set of legal and accounting principles that are well-meaning, but turn financial hiccups into liquidity black holes.
Avinash Persaud, founder and Chairman of Intelligence Capital, discusses regulatory solutions that would avoid this happening next time- Gresham College
Avinash Persaud's career spans finance, academia and policy advice. He was a top ranked sell-side analyst for 15 years and later a senior executive at J. P. Morgan, State Street and UBS GAM, before establishing Intelligence Capital Limited in 2005. He won the Jacques de Larosiere Prize from the IIF in 2000 for his essay on how trends in risk management and regulation were leading to systemic risks.
He is an Emeritus Professor of Gresham College and Visiting Fellow at CFAP, Judge Institute, Cambridge. He was elected a Member of Council of the Royal Economics Society (2007), is a Governor and former Member of Council of the London School of Economics. Persaud is known for his work on liquidity black holes and investors' shifting risk appetite.
He is a Member of the UN Commission of Experts on International Financial Reform, Chairman of the Second Warwick Commission, Co-Chair of the OECD EmNet, Deputy Chair of the Overseas Development Institute and a former founding director of the Global Association of Risk Professionals (2002-2009). He was formerly a Visiting Scholar at the IMF (2001) and the European Central Bank (2006). He is co-author of the Geneva Report on the Fundamental Principles of Financial Regulation with Brunnermeier, Crockett, Goodhart and Shin (2009). He is a member of the UK Treasury's Audit and Risk Committee and a Member of the Barbados National Council of Economic Advisors.
Measures employed by governments to influence economic activity, specifically by manipulating the money supply and interest rates. Monetary and fiscal policy are two ways in which governments attempt to achieve or maintain high levels of employment, price stability, and economic growth. Monetary policy is directed by a nation's central bank. In the U.S., monetary policy is the responsibility of the Federal Reserve System, which uses three main instruments: open-market operations, the discount rate, and reserve requirements. In the post-World War II era, economists reached a consensus that, in the long run, inflation results when the money supply grows at too rapid a rate. See alsomonetarism.