The riskiness of the market isn't nearly as predictable as it used to be,points out Andrew Lo,Professor of Finance at the MIT Sloan School of Management.Factors are pushing the markets.The entire sector is getting hit,not individual companies.
The Americans and Europeans must fix political problems.Fiscal integration in Europe is really inevitable.All of this debt on banks' balance sheets must be dealt with.There must be write-downs,recapitalisation and ultimately privatisation.We're waiting on the edge of our seats for these politicians to get their acts together.
We have to understand the global linkages across all these platforms.Any kind of coordinated activity means that things are really bad.Central banks have relatively few tools.Ultimately it's the political process that has to create the atmosphere for resolution.
We've been dealing with a lot of structural issues.Spending in the short run will help,but it is unsustainable.Ultimately,the only way to do it is cold turkey.Investors are scared.We're staring into the abyss.There are a lot of people in cash.They need to be able to invest in risk assets for their retirement.We need to restore trust in the financial system,Professor Lo reflected.
Dr.Lo has a PhD in Economics from Harvard University.He is an authority on hedge funds and financial engineering.His books include "Dynamics of the Hedge Fund Industry" and "Market Efficiency:Stock Market Behaviour in Theory and Practice."
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