What is now necessary is to clarify crisis management in three dimensions: reinforcing the EFSF’s capacity to ensure financial stability, based on convincing national fiscal and structural policies; strengthening the balance sheets of the European banks; and working out an appropriate solution for Greece’s medium term adjustment. This clarification is urgent.
This chasing of yield, due to global savings glut, in turn, led to a veritable credit bubble, characterized by unprecedented underpricing of risk as reflected in the all-time-low risk premia with junk bond spreads becoming indistinguishable from investment grade debt, and thus, to paraphrase Jim Grant, the riskiest of assets effectively offering return free risk !