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The Return of the Finance Threat?

Summary:
Given recent history, policymakers would be unwise merely to hope for a best-case scenario in which a strong and quick economic recovery redeems the enormous run-up in debt, leverage, and asset valuations. Instead, they should now act now to moderate the finance sector’s excessive risk-taking. CAMBRIDGE – After the 2008 global financial crisis, governments and central banks in advanced economies vowed that they would never again let the banking system hold policy hostage, let alone threaten economic and social well-being. Thirteen years later, they have only partly fulfilled this pledge. Another part of finance now risks spoiling what could be – in fact, must be – a durable, inclusive, and sustainable recovery from

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Given recent history, policymakers would be unwise merely to hope for a best-case scenario in which a strong and quick economic recovery redeems the enormous run-up in debt, leverage, and asset valuations. Instead, they should now act now to moderate the finance sector’s excessive risk-taking.

CAMBRIDGE – After the 2008 global financial crisis, governments and central banks in advanced economies vowed that they would never again let the banking system hold policy hostage, let alone threaten economic and social well-being. Thirteen years later, they have only partly fulfilled this pledge. Another part of finance now risks spoiling what could be – in fact, must be – a durable, inclusive, and sustainable recovery from the horrid COVID-19 shock.

The story of the 2008 crisis has been told many times. Dazzled by how financial innovations, including securitization, enabled the slicing and dicing of risk, the public sector...

Mohamed A. El-Erian
Chief Economic Adviser, Allianz. Author of NYT bestsellers "When Markets Collide" and “The Only Game in Town.”

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