Towards a comprehensive solution We have recently entered a new phase of risk transfer going from sovereign entities to the banking system and back again. Increased risk aversion has progressively spilled across countries.
But, in my view, the narrative actually began in a seemingly more benign time with underpinnings more fundamental than the value of the housing stock. Financial institutions and other market participants grew increasingly dependent on the extraordinary liquidity around them. When liquidity faltered, the weaknesses of the existing architecture abruptly revealed itself. A metaphor, perhaps, is instructive: Fish don't know they are wet.