And the way financial turmoil resonated through the global financial system indicates that the linkages among lenders and borrowers through leverage, complex interdependent counterparty relationships, and backup liquidity agreements propagated and intensified financial distress in ways neither the private nor the public sector understood very well.
Clearly, to improve the likelihood that we can contain systemic risk, we need to continue to learn more about financial products and market functioning. A related challenge is to improve our understanding of the linkages between the financial sector and real activity.