This guest post is by Ivo Pezzuto, Professor at the Swiss Management Center University (SMCU) in Zurich, Switzerland, and an experienced observer of the global financial services industry.
I share the analysis of most economists and observers that the following are among the main causes of the current global financial crisis:
- the U.S. Federal Reserve’s low interest rate policy at the beginning of the last decade, the resulting credit euphoria of both lenders and borrowers;
- the more ”relaxed” credit initiation and control policies and procedures of lenders;
- the “exotic” innovative features of some mortgage lending products;
- the overwhelmingly optimistic view of future house prices which prevailed in the market that has led to both the housing and the mortgage lending bubbles;
- the widespread use of badly controlled (OTC trading) innovative financial engineering tools (i.e., derivatives, securitizations, CDS, CDO, MBS, RMBS, CLO, etc.).
- Imbalances, exchange rates and interest rates differences between the US and other emerging economies and the resulting speculative trading and arbitrages. Continue reading