WASHINGTON – The financial world has been suffering lately from Post-Greenspan Stress Disorder. The new chairman of the Federal Reserve, Ben Bernanke, has been accident-prone, and some investors have gotten the jitters. They might be reassured if they paid more attention to the country’s second most powerful monetary official, New York Fed President Timothy Geithner.
Geithner watches for the big, scary meltdowns that could threaten the entire financial system. Like his mentor, former Treasury Secretary Robert Rubin, he’s a worrier – always looking for the “systemic risks,” the cascading events that can trigger a panicky rush for the exits. He’s in a constant dialogue with the nation’s biggest banks and investment firms about how they manage risk.
As with globalization itself, the good news and the bad news in these markets are the same – greater interdependence. Financial markets appear to be better protected today thanks to complicated products, known as derivatives, that allow different kinds of financial risk to be shared and traded around the world. You can hedge against almost anything these days, from hurricanes to interest rate hikes. The danger is that if this complex protective scaffolding ever failed, it could bring some of the global financial architecture down with it.
