the area - wide monetary transmission mechanism. the decrease in liquidity was most obvious for the markets directly related to the core of the current turmoil, namely the market for sub - prime mortgage - backed securities ( mbss ). however, since the start of the turmoil problems of illiquidity have spread further, affecting other asset - backed securities ( abss ), asset - backed commercial paper ( abcp ), and basically all structured credit instruments, such as collateralised debt obligations ( cdos ). also the liquidity in the secured non - government repurchase agreement ( repo ) markets was heavily impacted, as many banks no longer wanted to accept the types of securities mentioned above ( mbss, abss at large, and cdos ) as underlying collateral in repo transactions. another market segment that saw a partial ( temporarily, even severe ) deterioration of liquidity conditions is the foreign exchange swap market, which is very important for banks managing liquidity in different currencies. occasionally, poor liquidity conditions have been reported even in markets for securities historically regarded as very liquid and safe, such as the market for bank covered bonds or, even, the government bonds of some developed economies. to understand, at least partly, how the disturbances in a fairly domestic - oriented part of the us economy – a small segment of its housing market – could have spread across borders, financial markets and institutions all around the world, we must bear in mind the increasing importance of credit securitisation and the emergence of credit derivatives in global financial markets. credit securitisation essentially means to convert highly illiquid loans into liquid and tradable securities that can be sold to investors. while the origination of bank loans remains to a large extent level, financial globalisation has made the related securities available to investors worldwide. some scholars have nevertheless challenged the recurrent claim that the current turmoil is unprecedented. 6 indeed, past financial disturbances and crises have often had an international dimension and cross - border financial contagion is certainly “ no new thing under the sun ”. however, a number of factors, including its speed of transmission and scope, set the current episode of turmoil apart from previous experiences. 4. policy responses let me briefly elaborate on the actions taken by the ecb to address the financial market turbulences. in both “ normal ” and “ turbulent ” times, the primary objective of the eurosystem ’ s open market operations is to keep the overnight rate as close as possible

second largest economy and is of primary importance for the outlook in asia as a whole. a crisis in other asian countries then materialised almost a year ago. the problems showed up first in thailand but soon spread to south korea, malaysia and indonesia. while the deterioration in these countries was partly a consequence of the economic stagnation in japan, perhaps the main cause of the acute crisis was that a strong capital inflow from the west, above all from the united states, suddenly turned into an outflow. for various reasons, political as well as economic, assessments of the development potential in the countries in question had been gradually revised. more recently the problems have spread to russia, where the economic situation - as in japan - was already troublesome. the situation became so precarious that the russian government suspended payments on government debt denominated in the domestic currency. that was a very far - reaching decision. since then, capital outflows have also hit latin america. for a long time it seemed that the asian crisis would not have sizeable repercussions in industrialised countries in the west. the direct real economic impact was judged to be small and at first it looked as though the main effect would be a tendency to keep inflation down, while growth would remain good. as russia also encountered increasing problems, however, there was growing concern and the crisis accordingly began to spread even to financial markets in the west. during the summer, share prices began to fall. credit risks rose. investors and banks started to become increasingly cautious, partly on account of some losses. when a highly reputable hedge fund, long - term capital management, was hit by major setbacks, the international banks became even more wary. investors have fled to assets that are generally regarded as secure. lending rates to all but the most creditworthy borrowers have therefore risen around the world. in the last few days, moreover, long bond rates have moved up in many countries, which is a sign that investors are increasing the cash component of their portfolios. expressions like “ flight to quality ” and “ flight to cash ” are common in the course of a development such as that we are now experiencing. how great will the repercussions be? observers throughout the world are now engaged in appraising the global economic effects of the crisis in southeast asia, the inability to tackle the problems in the japanese economy, the uncertainty about the situation in russia and the risk of contagious effects in latin america. the