'Countdown to Next Crisis'

Tick-tock, tick-tock, tick-tock ... Can you hear that? It is the countdown to the next financial crisis. I hate to say this just as green shoots are sprouting – the Dow crossed 10,000 points this week, banks are reporting bumper profits and the US recession is all but over – but there is a reason why it is called a “cycle”.

From the South Sea bubble to the 1929 crash, Long Term Capital Management and Enron, the villains in the financial drama have changed constantly. So even if you make policy by looking at the rear-view mirror, as politicians do, you have to look beyond banks.

With all the regulatory eyes on banks, their more discreet rivals are quietly stoking up the risk of a new blow-up. In theory, huge hedge funds should be caught by the Fed’s ability to police any institution that is deemed “systemic”. But in practice, keeping tabs on groups that reveal little about themselves will be tough. And there is always the possibility the epicentre of the next crisis might be a medium-sized hedge fund whose network of trading relationships make them “systemic” – a Bear Stearns of the hedge fund world.

Francesco Guerrera, Financial Times, 16-Out-2009