#3 In a nutshell, banks globalized their lending and much/most that cross border lending was in USDs and backed by USD securities (including mortgage backed securities). When the financial crisis hit there was a huge demand for USDs to settle the many USD denominated liabilities, while banks were hoarding USD cash.
Exactly the same thing happened in the USA.
It then goes on to discuss improper pricing and hedging of risk. The cause of the financial crisis in the first place.
'Bailed out' is a misleading term. What the Fed did was provide sufficient liquidity (moreorless cash) for the world's banking system. Which is its function for the US banking system. And if you think that having the USD as the world's reserve currency is a good thing (which I don't) then the Fed must do the same for the world's banking system in order for the system to work. |