Ben Bernanke is now claiming that it is effectively "hot money" Foreign Investment which caused the GFC in the US. This is a photo-stat of Asia's arguement in 1997-8 during their Crisis - which resulted in Asia as a collectively moving away from the washington concensus and capital account liberalization. The US's complaint is ironic, but also helps to explain why a new concensus on capital account liberalization is emerging. Now liberal investment would be great if you can trust the pricing mechanism - the global credit rating agency have proven their useless so amazing that this is unlikely. The irrational bias of investor towards their home market is starting to look pretty sensible.
Quotes
Ben Bernanke - "Foreign investors’ hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA rated bonds, Ben Bernanke, US Federal Reserve chairman, argued in Paris on Friday.
“The preference by so many investors for perceived safety created strong incentives for US financial engineers to develop investment products that ‘transformed’ risky loans into highly rated securities,” said Mr Bernanke, presenting a new research paper that he co-wrote with other Fed economists."
This AMAZING anecdote courtesty of the FT.http://www.ft.com/cms/s/0/eea1957c-3b5e-11e0-9970-00144feabdc0.html#axzz1EO1UIahc
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