What are the dynamics at play in the current U.S. economic crisis?
Rosengard: What you have, basically, is a loss of confidence in our financial system. We have a bit of a contagion effect in which one crisis leads to another crisis and threatens systemic collapse. Q: How do you envision that the financial markets will look when this crisis is all over? Rosengard: We have this negative synergy right now between the financial sector and the real economy and that’s aggravated by asset price deflation, so the situation keeps feeding on itself. Over the long run, I think you’re going to see a very different landscape for the financial sector; it will probably be much more consolidated due to a lot of mergers, acquisitions, takeovers and liquidations. This is unhealthy because it basically concentrates the risk. One of the decision rules for government to intervene is when an institution is considered “too big to fail.” So if at the end of the day, those institutions left standing are all too big to fail then you’re shifting a lot of the risk and a lot of
