the underlying assets that it was virtually impossible for anyone, including the rating agencies, to fully understand the risks involved and to price such risks appropriately. we now know that there were thousands and thousands of cdos sold before the global financial crisis that were given triple - a ratings simply because seriously flawed assumptions and models were used in assessing the risk of defaults. as i mentioned earlier, these financial derivatives had helped amplify the shocks and transmit these shocks across the global financial system during the latest global financial crisis. an era of awakening? while we have seen many instances where market discipline has broken down, it is hard to believe that market discipline will break down permanently. as europe has recently found out, the market can suddenly awaken and begin to doubt the fiscal sustainability of some members of the euro zone. this belated awakening has so far created considerable dislocation to the banking system and capital markets. once the market discipline begins to kick in, the national and pan european authorities have little choice but to push forward a series of drastic, painful but necessary austerity measures to quickly achieve fiscal consolidation and to restore market confidence. another important issue we are facing is to what extent monetary policy could be effective in supporting and stimulating economic growth. in other words, it is by no means clear that excessive accommodative monetary policy would be effective in boosting demand and creating jobs in the us and elsewhere and whether such policy, if deployed for a long period of time, would have undesirable consequences, both overseas and domestically, that would outweigh the likely benefits it could potentially generate. i would argue that we central bankers must be able to recognise the pitfalls of trying to achieve goals that are beyond our reach. and i would agree with chairman bernanke when he said in his recent speech at the jackson hole conference that “ most of the economic policies that support robust economic growth in the long run are outside the province of the central bank ”. while monetary discipline, fiscal discipline and market discipline are absolutely necessary conditions for economic stability and prosperity, they are clearly not sufficient conditions. for the global economy to recover and to return to its long - term growth trend, important structural imbalances in the major advanced economies have to be corrected. we must recognise that economic growth and prosperity built on excessive debts by households, corporates and the governments are clearly not sustainable. we must awaken to the cruel reality that somehow the debt overhang accumulated over the years has to be reduced

we might helpfully serve some catalytic function. let me mention just two areas of special attention in hong kong at present - without denying that there may be others too. the first concerns the stock and futures exchanges, where there is a major agenda for change. notable components of this agenda are the 30 - point programme announced last september for strengthening discipline and transparency in the markets - most of which have now been implemented - and the proposals announced by the financial secretary in march to reform and unify the ownership structures of the stock and futures exchanges and their clearing houses. a tight timetable has been set and progress should be visible later this year. the second concerns the development of the hong kong dollar debt market. this market has progressed considerably in recent years, with the evolution of the markets for exchange fund bills and notes, borrowing programmes by public sector bodies, fundraising by multinational agencies and sizeable funding programmes - mainly at the short end - by hong kong financial institutions. but, except for exchange fund bills, the secondary markets are not greatly active and there has been little activity by local private sector corporate entities to raise longer - term funds directly from the debt market. perhaps the difficulty is simply that market conditions are seldom regarded as propitious on all fronts simultaneously - at present, for instance, the general level of interest rates may tend to discourage issuance at term. and there is definitely a chicken - and - egg problem in that prospective investors would like prior evidence of a liquid market, but liquidity cannot be tested until there has been issuance. dilemmas such as these are certainly not unique to hong kong. i acknowledge also that there are perceived obstacles concerning the tax regime, but it is worth noting that hong kong does have a low overall tax environment. it is hard to find solutions which fully satisfy all parties in such matters. it is also worth noting that, in normal market conditions, there is perhaps less incentive to exploit the potential of the local currency debt market than there might be in other centres, because of our pegged exchange rate : some borrowers may consider the us dollar market a satisfactory surrogate, especially given its established liquidity. in that sense we may be a victim of our own success on the exchange rate front, although i would not wish to place too much weight on this point - it may be a viable alternative only for a minority. however, if funding needs can be properly satisfied via alternative routes, we ought perhaps to rest content. our role at the hong kong monetary authority is