Systemic Liquidity Risk and Bipolar Markets: Wealth Management in Today's Macro Risk On/Risk Off Financial Environment

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Could a Eurozone Breakup Trigger Another Systemic Crisis?

For reasons which can be and are overlooked in the concerns expressed about the threats posed by the macro-economic woes of the 17 countries which share the single currency, it will be suggested that the difficulties within the Eurozone have the capacity to create a true systemic crisis which could dwarf the problems seen in 2008. The reason I make this claim is that there is a political dimension to the threat of financial contagion which could easily develop over the coming months and years which was not in the spotlight when the financial system teetered on the edge back in 2008. At that point the financial crisis had more of a cathartic effect on policy makers and the population at large. After many years of relative “prosperity,” sometimes referred to as the “Great Moderation,” the shock of the GFC had an unfamiliar and mesmerizing effect on sophisticated market practitioners and the layman alike. Today such “innocence” has gone.

Despite clearly articulated hostility towards the various rescue programs such as TARP by a significant part of the US electorate, the populace was less cynical and indeed far less well educated in all of the mistakes and improprieties that had brought on the crisis. One of the true growth businesses since 2008 has been a proliferation of books, films, and commentary on what went wrong in the events leading up to the financial crisis. Now with so much knowledge of the recklessness, stupidity, ...