“Pension funds and other long-term investors are taking ever bigger risks and could be laying the ground for renewed turmoil when money gets more expensive, one of the world’s leading economists told Reuters.
As memories of the financial crisis fade and market confidence soars, policymakers have warned that investors desperate for any return on ultra-cheap money could be creating yet another bubble to go bust.
Now the chief economist of the body bringing together global central bankers has warned that while banks are still repairing the damage of the last crisis, pension funds have cast off their risk aversion in the hunt for profit.
“Things look and feel great but we are storing up a possibly more painful and more destructive reversal,” said Hyun Song Shin of the Bank for International Settlements (BIS).
“The one thing that is different between now and 2006/2007 is that the protagonists … are no longer … the banks. This risk taking is happening through other market players. Long-term investors are also joining in.”
This changing pattern of behavior carries “a potential source of danger,” he said. “We are going into somewhat unfamiliar territory.”
Central banks in the eurozone, Japan, Britain and the United States risk keeping the taps of cheap money open for too long after the financial crisis, he said.
Shin is the economic adviser to a group that brings together policymakers from across the globe, including European Central Bank President Mario Draghi and Federal Reserve Chief Janet Yellen.
He called on regulators to be alert to the new risks…..”
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