At the same time, there are some positive developments. The substantial reduction in ECB interest rates since last October is being passed through to lower bank lending rates, thus easing financing conditions for companies and households. I also find it encouraging that money market conditions have improved gradually but steadily.
To reduce the risk of future problems here, a new regulatory regime should be developed that will allow the U.S. government to address effectively at an early stage the potential failure of any systemically critical financial institution. Finally, there is the question of whether the Federal Reserve has become involved in the inherently fiscal function of allocating credit to specific sectors of the economy.