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Regulators must reassert control over leverage as this is at the root of excessive lending. This will lower the profitability of financial firms but this is a price that has to be paid. The world economy has been in turmoil for nearly a year, driven by persistent problems in the financial sector of the U.S. and Europe. Since August 2007, central banks of the U.S., Europe and Japan have repeatedly injected liquidity into the banking system in order to rescue it from the ravages of the sub-prime housing loan defaults. The damage is widespread, and not confined to any particular region or sector. Most leading banks have been badly hit by the crisis. Large financial firms such as American Home Mortgage, BNP Paribas, and Countrywide Financial faced severe liquidity problems. In an unprecedented intervention by the Federal Reserve... [read full story]
