call to review the progress of the working groups. two of the working groups concluded that a “ lifting ” of the fixed income and equity positions was not feasible. the third group developed a consortium approach, which was deemed feasible. every one agreed that the consortium approach should be “ last ditch ”, and that parallel solutions should still be encouraged. the four firms met at the federal reserve at 7 : 00 p. m. a draft term sheet was reviewed which provided detail with respect to the consortium approach. the terms and conditions were debated, altered in some places, and ultimately refined so that the four firms could present it to a wider group. although federal reserve officials were present at the meeting, we did not participate in the discussion about terms and conditions. at about 8 : 30 p. m., a meeting of a wider group involving 13 firms began. meanwhile, some representatives of the core group called long - term capital to discuss the terms and conditions of the consortium approach. federal reserve officials did not participate in any conversations with long - term capital regarding the terms and conditions. in the meeting with the wider group, peter fisher explained the importance of avoiding a disorderly close - out of long - term capital ’ s positions. he also underscored the desirability of parallel efforts to resolve the problem. it was agreed that the group would reconvene at 10 : 00 a. m. the following morning. it was clear to everyone that time was of the essence. i returned to new york from london around midnight. during the early morning hours, i called various foreign central bank officials to inform them of the situation. at about 9 : 30 a. m. my colleagues and i met with the core group to review the status of the situation. a few minutes before the start of the scheduled 10 : 00 a. m. meeting, one of the core group firms told me that an investor group would make an offer to acquire the long - term portfolio. i called one of the representatives of the investor group to confirm this development. the offer was subsequently conveyed to long - term capital by that investor group and a response was requested by 12 : 30 p. m. after a brief consultation with the core group, i decided that the effort to proceed with the consortium approach needed to be suspended for a short time until the alternative offer could be considered. as noted earlier, the consortium approach was seen as a “ last resort ”. consequently, the meeting about the consortium approach was adjou

including the major oil exporters, has broader consequences for the world economy as a whole. insufficiently flexible exchange rate regimes have the potential to alter the pattern of capital flows and the price of financial assets. so do the increase in the mobility of saving and investment ; the increase in the desired exposure to foreign assets ( the reduction in home bias ) ; the financial market innovation that allows for better diversification and risk sharing ; and the differentials in the pace of technology adoption or workplace practices that give rise to varying productivity trends across countries. these all contribute to the patterns of capital flows and imbalances that we observe in the world today, and it is very hard to disentangle their effects from those of exchange rate and monetary policy arrangements. that some of the forces governing capital flows and asset values are driven not by market - determined expected return but by policy measures directed at, for example, an exchange rate objective means that at least some of what we observe in global capital markets may be attributed to these distortions. the fact that official purchases of financial assets are determined by different factors than those influencing private investors suggests that we would probably see a somewhat different combination of capital flows, exchange rates and interest rates in the absence of official intervention. to the extent that the factors affecting capital flows act to raise asset prices, lower interest rates and reduce risk premiums, it is harder for the markets to assess how much of the currently very favorable conditions are likely to reflect fundamentals and prove more durable. if the prevailing patterns of capital flows were to exert downward pressure on interest rates and upward pressure on other asset prices, they would contribute to more expansionary financial conditions than would otherwise be the case. among other things, this outcome complicates our ability to assess the present stance of monetary policy. it can change how monetary policy affects overall financial conditions and the economy as a whole. such complications can mask the effect of other forces that might otherwise find expression in risk premiums or interest rates : forces, for example, associated with the concern about fiscal sustainability in the united states or the sustainability of our external imbalances. moreover, the policies that have played an important role in this pattern of global capital flows are already in the process of evolution, thus adding still further to the considerable degree of uncertainty we face about the longer - term outlook for the economy. in today ’ s rapidly evolving global economy, monetary policy makers cannot ignore the international dimension. as economies become more open, external developments inevitably affect