Richard Fisher analyses sub-prime crisis

Richard Fisher (President of Dallas Fed)  has analysed the subprime crisis and regulatory responses. As usual, it is full of wit and humor and makes for a good, light read. The html version is here and pdf version is here.

A few Fisherisms:

• Like exotic foods, consumption of new risk products can lead to indigestion, and even allergic reactions. Lately, we have witnessed many allergic reactions—in the form of losses and setbacks—especially among money center banks and other financial institutions.
• It didn’t stop there. Banks in other countries that had invested in the too-good-to-be-true U.S. housing market through these products began to record large losses. Even some that weren’t directly involved in the U.S. housing sector or these products still felt the repercussions; who could have imagined that house price declines in the U.S. would contribute to a bank run in England?
• We must have a system where the financial pipes and sprinkler heads that nourish capitalism sustain the fertile lawn that is the American economy. It is the Fed’s duty as lender of last resort to lead the way to restoring the efficacy of the financial system.

Fisher also mentions about Washington Irving’s essay on “Mississippi bubbles” in 1819. Every word is relevant today and it is as if he is talking today. Despite this people say times have changed and this is modern finance.