The degree of financial unease then varied during the course of the following year. The TED spreads peaked when the banks wanted to secure their liquidity ahead of the turn of the year 2007-2008. A further peak was reached in March 2008 when Bear Sterns suspended payments, but things calmed down again after the Federal Reserve mediated the takeover of the bank by JP Morgan. In mid-September 2008, when Lehman Brothers was forced to file for bankruptcy protection, the financial unease became an acute financial crisis. The TED spreads were driven up to very high levels. Many banks, institutions and funds were highly exposed to Lehman Brothers. Few had expected that such an important bank could fail. Previously the US authorities had let the shareholders take the consequences. Now the borrowers also had to take some of the losses. There was a great deal of concern that more players would end up in a similar situation. The remaining large investment banks in the United States also disappeared as independent investment banks. The TED spreads have risen and varied during different periods of time in Sweden, too, but they have been lower than in the United States and the euro area. Causes of the crisis – mortgages, imbalances and inadequate supervision The factor that triggered the financial crisis was thus the problems on the US housing market and mortgage market. An important element behind the prolonged rise in US housing prices was the rapid growth of lending for house purchases to low-income households.
This decision was taken on the grounds that the evidence continues to support the assumptions which have formed the basis of the derivation of the reference value since 1999, namely those relating to trend potential output growth of 2-2½% per annum and to a trend decline in M3 income velocity of ½-1% per annum in the euro area. We will issue a separate press release this afternoon explaining in greater detail the background to this decision. When comparing current developments with the reference value, it is important to remember that the reference value is a medium-term concept. Short-term movements of M3 do not necessarily have implications for future price developments. Moreover, deviations of M3 from the reference value must be analysed in conjunction with other real and financial indicators in order to understand their implications for price stability. Turning to the most recent data, in the period from August to October 2002 the three-month average of the annual growth rate of M3 was 7.1%, unchanged from the previous three-month average. M3 growth has been influenced considerably by portfolio re-allocations in an environment of general uncertainty and particularly by stress in financial markets. At the same time, it also reflects the low level of interest rates in the euro area which makes the holding of liquid assets relatively attractive. There is ample liquidity in the euro area. However, in the light of the sluggish economic growth, it is unlikely that this excess liquidity will translate into inflationary pressures in the near future.