that the crisis is more serious than was thought in 2007 we are realizing there month after month in this difficult 2008, which is about to close so depressing and bleak expectations .
The underestimation, it must be said, then was general.
The sub-prime mortgage crisis has not been seen in its seriousness of global epidemic not only at local level but also at sectoral level. It is transmitted by the United States to the rest of the world. From credit to finance. Financial markets to markets real. Demand for goods to production and to depress employment.
We did not realize that the crisis had come from afar. Now we see that go away over time.
Unfortunately, governments have realized that derive electoral advantage from the phases of expansion and have no incentive to curb the financial results of euphoria. It 's easy to govern and achieve consensus when the economy is booming. It would be wise in times of plenty to rationalization and restructuring of bold reforms. Preventive interventions to contain the excesses, to combat waste, bridge delays, reduce inefficiencies, redistribute income and unlock the potential of human and social capital development. Rarely take advantage of this opportunity. Especially in Italy, where reforms have been made only when forced by an emergency situation.
Now that the crisis has manifested itself fully, it is more difficult to intervene, even if it is dramatically necessary. Resources are scarce. Times are tight. The problem is not so much to find solutions, how to activate them in a credible manner and with effects that are at the same time fast and durable. It is a widespread opinion in favor of the right to an expansionary fiscal policy. But it is unclear which resources, in what direction, with what effects. Govern in times of lean is difficult. This is especially for the Italian government which should make it compatible measures to revive the economy and promises of tax relief with a debt to contain at least in the short and in any case to reduce in the medium to long term.
In all this succession of priorities and constraints, the imperative is to act quickly. But the concern is just do not tie in with the soon to do well. The risk is feared that once you do one-off which are palliatives to the seriousness of the situation.
The global crisis has been underestimated even by central banks. Fed and ECB have officially shown to care only in the first ten days of August 2007. But the outbreak of the sub-prime crisis had already switched from the first quarter of the year. For at least six months behaved as firefighters who assist the spread of the fire, hoping it to go out alone. The measures adopted were not only late but also contradictory. The ECB at the beginning of summer 2008 was still working on the line of raising rates to fight inflation. Cost inflation, the increase of stratospheric oil prices, and hardly curable with the rising cost of money that if anything has dampening effects on demand, but not on the tender prices.
Just months after the Fed and the ECB also delay have lowered official interest rates. But he was already fired the most feared phenomenon in financial markets: the crisis of confidence that is forwarded along the chain of intermediaries. A chain stretched to the extreme view to spread the financial risk on so many rings that have proved largely empty boxes. The chain is broken into several parts, revealing a structural fragility of which the supervisory authorities and central banks had advance notice.
The same central banks in their lending, have expressed no confidence, and then passed it on to the banks. The ECB lowered its benchmark rates and expanded the availability € granted by banks in the auction. But at the same time, has devalued the securities listed as collateral. This conservative approach, which penalizes banks, contrasts with the appeal addressed by the monetary authorities to the same banks to be more lax in granting credit nell'interbancario and more confident in favor of businesses.
The banks have behaved in a manner inconsistent. On the one hand blocked interbank loans to a lack of counterparty confidence in the bank. The other asked confidence to depositors, who are tempted to withdraw their deposits, as many have done. To ensure the availability of liquidity to any bank runs by depositors, the banks have frozen with the ECB their cash. More particularly, the re-filed at the central bank's euro bought at auction from the same week. In fact, banks have made a precautionary demand for liquidity, which are hidden under the "mattress" of the ECB waits for events less risky. Operation that the ECB has even encouraged by reducing the cost by half a percentage point to point (with reference to the difference between the main refinancing rate fell from 3.75 to 3.25 and the rate on overnight deposits was 2.75). The end result was to frustrate the efforts of policy monetary expansion. The liquidity has been created, but has returned to the vaults of the ECB!
A crisis started from the easy credit was eventually overturned in a credit crisis difficult. The consequences are paying the firms, especially small, most dependent on bank credit, and employment that are in alarming decline.
A combination of causes, errors, effects and reactions caused this crisis very seriously, by extension in space and time. All that remains is to make a virtue of necessity and hope that governments and central banks should learn from this experience of underestimation and equipped with adequate tools to prevent and contain future crises. Certainly not to avoid them, because with global markets is not possible. He convinced the evidence before economists iperliberisti. And they also admit to having underestimated the crisis. Or to have overestimated the ability of financial markets to regulate themselves. Now rediscover state intervention, but can not be improvised, and mostly first return to preach the absolute sovereignty of the market.
Consistency is certainly a difficult virtue, but it is also necessary. At least that.
Pietro Alessandrini
November 21, 2008
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