Monday, March 12, 2007

. Financial Times

- Goldman Sachs & the "inevitable liquidity drought". David Wighton, writing for the Financial Times' Corporate Finance supplement, reveals that Goldman Sachs has been quietly "taking advantage of cheap long-term funding to extend the maturities of its debt with unusually relaxed covenants". Wighton also quotes a Citigroup banker: "Now is the time to prepare for less certain capital availability".

- Central banks & hedge funds. In a letter to the Financial Times, former IMF-economist Vito Tanzi warns about the dangers of central banks investing in hedge funds, as some did (with disastrous consequences) before and during the Asian currency/LTCM crisis. This is likely to happen, according to Tanzi, if "the US keeps injecting more liquidity in the international financial system". OK, except that the Federal Reserve is not running a lax monetary policy.

- The BIS on global liquidity (*). Malcom D. Knight, General Manager of the Bank for International Settlements, assesses "the evolving nature of financial risk" and warns against the danger of complacency. He admits, however, that we may be witnessing long-term, structural shifts involving the very notion of "liquidity":

We may be witnessing a progressive change in the characteristics of business fluctuations, in a new environment defined by liberalised financial markets, globalisation and central bank anti-inflation credentials. Indeed, market participants often refer quite aptly to the loose notion of "ample liquidity", in the sense of low financing costs and easy access to credit or funding liquidity.

(*) Malcom D. Knight. "Now you see it, now you don't: risk in the small and in the large", Keynote address at the Eighth Annual Risk Management Convention of the Global Association of Risk Professionals, 27-28 February 2007.

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