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An evolving model
22 May 2008
The recent market turbulence has caused a new phenomena to occur. The lack of liquidity and bank instability has caused the central banks of the world to reevaluate their role in the markets. Craig MacDonald investigates how central banks have become more proactive and creative in the markets, if their plans are working and how it will effect spreads.
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Bank of England
Fed
central banks
spreads
What a difference a year can make. One year ago, the markets were bullish. One year ago Bear Stearns was a stand alone US prime broker. And one year ago we were not talking about a recession.
But again what a difference a year can make. The fact is, the markets have been hit like never before as many industry practioners keep telling this reporter, "I have never seen it this bad." But unlike in other times of market crisis there has been some innovatively placed band aids helping to heal the market wounds, initiated by both the Federal Reserve Bank (Fed) and the Bank of England.
We know the role of a central bank. It is to provide enough liquidity for an economy to function properly. Its job is to make sure the markets are running efficiently and help where possible to avoid any systemic risks. And central banks...
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