Local view for "http://purl.org/linkedpolitics/eu/plenary/2007-09-05-Speech-3-184"
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"en.20070905.21.3-184"2
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"Mr President, while the Council was not meeting, at least the European Central Bank, was at work and I think can be given some credit for having stemmed the possible further infection in Europe. Let us hope it will continue to play that sensible, reasonable and sensitive role.
But every so often it seems that it is the inevitable fact of financial life that the chase after competitive advantage will lead to excesses, which in turn lead to the predictable bust. These pressures are largely responsible also for the urge to develop these innovative financial instruments which Mr McCreevy described, and which lurk behind the development of this crisis in the American sub-prime mortgage market and its resulting transmission to Europe.
I do not see this situation as a justification for a witch-hunt on hedge funds. To some extent they have been perhaps sophisticated, or naive, victims of these new-fangled alchemies. In the same way, normally conservative but naive banks have been tempted by the enhanced interest rates paid by these supposedly high-rated instruments to go for what has obviously turned out to be too good to be true.
It seems that few operators in the financial markets, including, probably, few regulators, sufficiently understand these instruments, these credit derivatives, these collateralised debt obligations. Even less do they fully understand the potential risks and implications. So it is incumbent on the authorities both in the US and Europe – and I am glad to see that Mr McCreevy is going to take this particular aspect so seriously – that they all become more conversant with these mechanisms with their structuring and their slicing, how these slices are rated, valued, accounted, with their marketing, with their liquidity and tradability.
Innovation is as desirable in financial mechanisms as anywhere else. This must not be inhibited but, when problems of this seriousness are likely to emerge, it is essential that managers and regulators shoulder their responsibilities to understand them fully and, if and where necessary, introduce the requisite restraints."@en1
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