Fifteen years after the collapse of the US investment bank Lehman Brothers triggered a devastating global financial crisis, the banking system is in trouble again. Central bankers and financial regulators each seem to bear some of the blame for the recent tumult, but there is significant disagreement over how much – and what, if anything, can be done to avoid a deeper crisis.
BERKELEY – Imagine two central banks. One is hyperactive, responding aggressively to events. While it certainly cannot be accused of ignoring current developments, its policies are widely criticized as storing up problems for the future.
The other central bank is unflappable. It remains calm in the face of events, seeking at all cost to avoid doing anything that might be construed as encouraging excessive risk-taking or creating even a whiff of inflation.
What I have just described is no mere hypothetical, of course. It is, in fact, a capsule depiction of the United States Federal Reserve and the European Central Bank.
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