"Let me conclude by noting an often overlooked fact. The use of the more- sophisticated techniques I spoke of earlier, especially the various forms of derivatives, are, by construction, highly leveraged. They are thus prone to induce speculative excesses, not only in the U.S. financial system, but also through out the rest of the world. The greater potential for systemic risk can be contained by improvements in effective risk management in the private sector, including market discipline based on better public disclosure, and by improvements in bank supervision and regulation in the public sector. To be sure, as I have noted elsewhere, there is some level of risk that must be absorbed, as a last resort, by central banks if an economy is to obtain the full resource allocation benefits of financial intermediation."
There was a big article in the WSJ today about the fact that lots of universities have been turning to hedge funds to buffer their losses from indexes. AG seems to me to be encouraging such speculation, so long as the funds are big enough to truly threaten a big meltdown.
So, Doug you think the Fed won't be able to manage the next big one? Is this just an public form of denegation--no, no really, the banks are really sound, despite that big sucking sound . . .? Are you really worried?
Christian