Kohn Soundbites

From Fed Board Vice-Chairman Don Kohn's last speech, Financial Stability and Policy Issues, May 16, 2007:

"We could face situations in which asset price movements are exacerbated by the actions of market participants, including dynamic hedging strategies or forced liquidations of assets to meet margin calls, and those asset price movements could feed back onto the economy....

In the extreme, price variations and other adverse developments could call into question the viability of these intermediaries, threatening a larger cumulative real effect....

We need to accept that accidents will happen--that asset prices will fluctuate, often over wide ranges, and those fluctuations will be driven in part by trading strategies, by the cycles of greed and fear that have always been with us, and by the ebb and flow of competition for market share. The fluctuations will result in redistributions of wealth and, on occasion, will confront us with financial crises....

Supplying additional liquidity and reducing borrowing costs can greatly ameliorate the effects of market events on the economy, and those types of macroeconomic interventions will carry less potential for increasing moral hazard than would the discount window lending..."

Interesting.