Subprime: a many-headed Hydra

Yesterday, the ECB (European Central Bank) provided an unprecedented €95bn into the region’s credit markets, to maintain liquidity. Otherwise, firms would have had problems paying their bills, and employees might not have been paid their wages. This is serious stuff, and it was followed by the US Fed providing $24bn into US markets, and the Bank of Japan with ¥1trn of assistance this morning.
The subprime crisis is now becoming a many-headed Hydra, with problems having already emerged with financial institutions in the US, Australia, Germany, Singapore, the Netherlands and France. This, of course, is how things were meant to work under the securitisation model. The problem loans are to be found all round the world, providing a textbook example of how risk was indeed shared around.
However, last month’s warning by the BIS (the central bankers’ bank), is also relevant. So far, as they forecast, we have indeed only seen ‘a tendency for national authorities to go it alone’. There has also been the ‘international dialogue’ between the ECB, Fed and BoJ to which they referred. But are the right institutional processes in place, in case today’s financial crisis gives more signs that it might start to impact the real economy in which chemical industry people live and work? One wonders.

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