Laying into regulators for their hand in the current global financial crisis, economist Sanjeev Sanyal claims that the more he looks into it, the more he realises that it’s all because of a “failure of common sense.”
What Happened? Sanyal in a tweet on Friday said that the deeper one goes into analysing what went wrong to have caused a major crisis, “the more one realises that it is due to kindergarten level mistakes in management “
“Usually the cause of such a crisis is a major failure of regulation, theory or practice. This time it is a failure of common sense,” states the economist.
According to Sanyal, those running the U.S. system aren’t tackling a unique problem that was hard to see coming. He points the problem towards “duration risk” which is also known as interest rate risk.
“Duration risk is as basic as it gets. Clearly, those running the financial system in the West are just non-serious,” exclaims the member of the Economic Advisory Council to the Prime Minister of India.
What’s Duration Risk? Duration risk is the possibility that changes in interest rates may reduce or increase the market value of a fixed-income investment.
Over the past year, the U.S. Federal Reserve has increased interest rates at its fastest pace in recent history, deliberately pegging down the gears of the financial system in order to bring down inflation.
But in the process, the Fed inadvertently blew a hole in the finances of Silicon Valley Bank and many of its peers.
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