The Bankwatch

Tracking the consumer evolution of financial services

“Rally fuelled by cheap money brings a sense of foreboding” | ft.com

Gillian Tett voices her concerns here, based on background discussions with bankers. We are not out of the woods yet, despite the equity markets.

Rally fuelled by cheap money brings a sense of foreboding | FT

Yet, if you talk at length to traders – or senior bankers – it seems that few truly believe that fundamentals alone explain this pattern. Instead, the real trigger is the amount of money that central bankers have poured into the system that is frantically seeking a home, because most banks simply do not want to use that cash to make loans. Hence, the fact that the prices of almost all risk assets are rallying – even as non-risky assets such as Treasuries bounce too.
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In the meantime, it is crystal clear that the longer that money remains ultra cheap, the more traders will have an incentive to gamble (particularly if they privately suspect that today’s boom will be short-lived and want to score big over the next year). Somehow all this feels horribly familiar; I just hope that my sense of foreboding turns out to be wrong.

Written by Colin Henderson

October 23, 2009 at 01:34

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