The overlooked threats to the global financial system

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In this environment, which appears chronically vulnerable to shocks, investors have come to expect constant central bank bailouts, a morally hazardous inducement to more risk-taking and debt accumulation. Each one of these market disruptions can be explained as the product of particular circumstances. Yet, they all reflect profound long-run changes in the role and structure of the world’s financial system. In the immediate postwar period, the central task of this system was simple. The household sector in the developed world saved for precautionary reasons and for retirement. It passed those savings, via the banking system and the capital markets, to...