Why markets can never be made truly safe
In seeking to prevent a crisis, officials may have planted the seeds of the next one
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COLLATERAL is usually a boring affair. Valuing assets and extending credit against them is the preoccupation of the mortgage banker and the repo trader, who arranges trillions of dollars a day in repurchase agreements for very short-term government bonds.
This activity is called financial plumbing for a reason: it is crucial but unsexy. And like ordinary plumbing, you hear about it only when something has gone wrong.
Now is one of those times. On Mar 16, the Swiss National Bank extended US$54 billion to Credit Suisse, backed by the bank’s collateral, in a move that turned out to be insufficient to save the 167-year-old institution.
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