There's an excellent observation here by Craig Pirrong on Peregrine Futures. Could it be that the whole fraud and collapse thing was brought on by the current low interest rate environment?

In one sense of course this is obviously nonsense: low interest rates don't create fraud. Fraudsters create fraud. In another though it is an interesting idea.

We have been saying this for quite some time. While it is trivially true that no "environmental" factor justifies fraud, certain financial conditions can clearly create an ecosystem which is rife for fraud. One of those is structurally, abnormally-low interest rates, which have been in place for 30-40 years and have become more extreme with the present financial crisis (yes, it is definitely an ongoing crisis while we have policy-imposed, near-zero rates).

So as long as this continues, expect more desperate behavior by financial companies and more blow-ups. But perhaps more worrying than implosions is a general environment of "yield-chasing" which involves spendthrift behavior (questionable investments and a trading-centric business model) that overall does not work out for the public or even financial firms, leaving us all poorer.

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