Why markets can never be made truly safe
In seeking to prevent a crisis, officials may have planted the seeds of the next one
Collateral is usually a boring affair. Valuing assets and extending credit against them is the preoccupation of the mortgage banker and the repo trader, who arranges trillions of dollars a day in repurchase agreements for very short-term government bonds. This activity is called financial plumbing for a reason: it is crucial but unsexy. And like ordinary plumbing, you hear about it only when something has gone wrong.
This article appeared in the Finance & economics section of the print edition under the headline “Collateral damage”
Finance & economics March 25th 2023
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