Recovery from the current global credit crunch will be a long-term process, according to an expert of financial derivatives and risk management.
“There will need to be a systematic de-leveraging of global financial systems,” Satyajit Das said. “The matter of time is elastic.”
The current global credit crunch is more than the bursting of a bubble, according to Das, and stems from problems in the US sub-prime mortgage sector.
“The early 2000s was a period of too much liquidity, too much leverage, too much complex financial engineering with too little return for risk and too little understanding of the risk.”
Das said the credit crunch is a complex issue of a systemic problem which equity markets have been slow to grasp the magnitude of.
The current volatility in markets is not a correction of markets but is rather the result of a liquidity bubble that is beginning to unwind, he said.
“It is the crucible in which theories of the ‘new money’ and financial engineering of the structured credit markets, financial innovation and global money are being tested,” he said.
“US $90 billion plus in losses to the major banks requiring cap-in-hand recapitilisation from sovereign wealth funds suggest that the theories are being found wanting.”
