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This ebook offers a radical evaluation of the new monetary hindrance from the point of view of either practitioners and lecturers specialising within the area.
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Additional resources for A Financial Crisis Manual: Reflections and the Road Ahead
The Bank of England acted similarly. Furthermore, the Federal Reserve became the buyer of last resort for securities that were being sold at distressed prices in the downward market spiral, and whose ex-post valuation would ultimately be inconsistent with the objective of an economic recovery. The Fed thus embarked on a vast purchasing program that encompassed an alphabet soup of securities, for which it provided a market as well as “warehousing” facility, possibly until maturity. Last but not least, the US government proceeded with decisive clean up and recapitalization of the banking system.
Although a full and valid assessment of the counterfactual may remain elusive, it appears logical to have chosen to depress domestic demand in Eurozone countries that had found themselves out of equilibrium. That, however, belongs to the past and it is entirely fair to say that policy making going forward will remain just as critical in managing the context that has ensued. While these economies have now adjusted enough to operate inside their financing boundaries, the challenge has now shifted toward their job creation constraints.
In that sense, while deterministic, the trajectory of the European as well as the global economy was highly dependent on the fiscal and monetary policy reaction function and its associated errors and biases. To that end, financial markets and practitioners had to not only predict fundamental economic developments, but more overwhelmingly than ever, the human error element behind policy decisions. It would have been impossible, and arguably irrational for financial markets to predict an ex-post error such as the collapse of Lehman Brothers.