How have they reacted?
“Knowing this, the rational response by market participants is to double their bets. This adds to the cost of future crises,” Piergiorgio Alessandri and Andrew Haldane of the Bank of England wrote recently. “This is a doom loop.”
“The recovery in financial markets is a welcome development but … if nothing is done to withdraw this stimulus, this search for yield will begin to lead to underpricing of risk,” says Hung Tran, deputy managing director of the Washington-based Institute for International Finance, whose members include most of the world’s large banks.
This is like having a 10yr old that knows you can’t kick him out of the house so he stays out all night. The experience of the past 18 months simply reinforced the fact that ‘mother will always be there’.
