Kid Gloves at the Fed

摘要

Back in February, 1994, when the Federal Reserve began jacking up interest rates, bond traders went berserk. Prices plunged as shocked speculators sold off bonds. In the ensuing carnage, several hedge funds went belly-up, and Orange County, Calif., went into bankruptcy. Now, as Alan Greenspan gets ready to lead the Fed through another tightening, the dangers posed by a financial backlash are much greater than they were a decade ago. That's because just a few firms dominate far larger markets for housing finance and derivatives. If a sudden rate rise upended one of those big players, the jolt to the financial system and the economy could be much more damaging than anything seen in 1994. Concentration "increases the vulnerability of the system to a... financial disruption," New York Fed President Timothy F. Geithner warned bankers on Mar. 25.