The sheer number of financial contracts that would have to be unraveled in the context of a default, the challenge that a former colleague of mine likes to refer to as "unscrambling the eggs," could exacerbate and prolong uncertainty, and complicate the process of resolution. As is typical during periods of rapid innovation, these markets grew much more quickly than did the supporting infrastructure. Take credit derivatives, for example. For most of the early years of this market, much of the post-trade processing system was not automated and required substantial manual intervention. Positions were assigned without the knowledge of counterparties. Confirmations backlogs rose to very high levels. As Alan Greenspan put it, the market was using 19th century methods of dealing with 21st century financial instruments. This created a greater risk of operational problems and uncertainty about exposures in the event of stress. The capacity of market participants to mitigate these risks by improving the infrastructure was hampered by classic collective action problems, magnified by the greater number and diversity of participants. All these challenges merit attention. They describe some of the risks that have accompanied the substantial benefits of credit market innovation. And they help illustrate why these broad changes in financial markets may have contributed to a system where the probability of a major crisis seems likely to be lower, but the losses associated with such a crisis may be greater or harder to mitigate. What should policymakers to do mitigate these risks?

Higher-than-warranted balances remained centered in the euro area as a whole (driven by Germany and the Netherlands) and in other advanced economies (Korea, Singapore), while lower-than-warranted balances remained concentrated in the United Kingdom, the United States, and some emerging market economies (Argentina, Indonesia). China’s external position was assessed to be in line with fundamentals and desirable policies, as its current account surplus narrowed further, although achieving a lasting external rebalancing will require gradual reining in expansionary macroeconomic policies and adopting further structural reforms. The mirror image of the current account balances, are the financial flows. After the crisis, global map of financial flows changed, mostly due to the shift in the global financial conditions and relative growth differentials between emerging and advanced economies. Following quantitative easing programs in advanced economies in the aftermath of the global financial crisis, portfolio and other investment capital flows to emerging market and developing economies intensified, which, together with accommodative macroeconomic policies, contributed to currency appreciation pressures and larger current account deficits. These trends, however, 5  started to reverse beginning with the 2013 taper tantrum episode as growth differentials between advanced and emerging market economies narrowed and the prospects of monetary policy normalization in advanced economies gathered strength. Direct investment remained relatively stable and less sensitive to changes in global financial conditions and US dollar movements. Despite the narrowing of global current account imbalances, stock imbalances have continued to widen to reach record levels.