Senator, we are groping for understanding, the knowledge you assume I possess doesn't exist' - 'The only effective regulation lies in the propensity of customers to choose alternatives, of investors to move their funds elsewhere and of labour to acquire technical skills' - 'Senator, if I seem clear to you, you must have misunderstood me' - 'Unfortunately, Senator, nobody knows where the next innovative idea is coming from. Political decisions are never random and will always lose out to innovative alternatives
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities.
I have long argued that paying down the national debt is beneficial for the economy: it keeps interest rates lower than they otherwise would be and frees savings to finance increases in the capital stock, thereby boosting productivity and real incomes.
I believe that the general growth in large [financial] institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically -- I should say, fully -- hedged.
What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so.
I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.