And the issuance of asset-backed securities in the UK, which involve parcelling up and selling different claims on pools of assets such as consumer loans and mortgages, has risen to some $ billion from $ billion in 1995. The UK now accounts for around a third of the issuance volume in European ABS markets. On the whole, such developments are positive for financial stability. Coupled with greater macroeconomic stability (Chart 3), they have made the financial system more robust by allowing market participants greater scope to distribute and diversify risk and to manage it effectively. Experience of previous rounds of financial innovation also suggests grounds for optimism. Swaps and other over-the-counter interest rate derivatives, for example, are now well understood and widely recognised as increasing economic flexibility and the productivity of capital. More recently global financial systems and the newer asset markets appear also to have withstood several recent shocks, such as September 11, the Dotcom bubble, the GM related wobbles in May 2005, Refco, and the Iraq war. The fact that some investors, such as hedge funds, are willing to take on greater risk does not necessarily give rise to system-wide concerns. Systemic risk in modern financial systems But there are limits to the amount of risk that can be hedged away. The financial system cannot reduce the amount of risk in the economy, but only repackage and transfer it.
The savings glut has in turn had a contribution into the increase in prices on the stock exchanges in the US, and subsequently to the increase of property prices, which has in turn lowered the level of savings of American households. The International Monetary Fund argues against the hypotheses of Bretton Woods 2 and the global savings glut by stating that the source of the current account surplus is an exceedingly low level of investments in Asia, except for China. Therefore, one should speak of a global investment draught rather than anything else, 30 as over the five years following the Asian crisis in 1997-1998, the investment level was by 7 percentage points lower than in the five-year period preceding that crisis. Considering the above, an appropriate recommendation for those countries is not limiting their savings rate, but rather improving their investment climate. There are numerous theories that attempt to explain the occurrence of global imbalances. According to some of them, the major reason behind global imbalances is the low level of savings in the US household and public sectors, 31 i.e. the fact that Americans spend more than they earn, and that the budget deficit, from a substantial surplus in the year 2000, turned into a level estimated at 4.7% of the GDP in 2004.