of investment is at, or below, the depreciation of the existing capital stock. the low level of investment in the manufacturing sector is particularly noteworthy, as manufacturing has historically accounted for around one - fifth of total nonmining investment. the third factor that i would like to discuss is the general lack of confidence by business. this lack of confidence can be seen in the various business surveys over recent years and has been clearly apparent through the reserve bank ’ s regular program of meetings with firms across the country ( graph 6 ). this reported lack of confidence is consistent with firms being uncertain about the future and risk averse in their decision making. so the logical question here is : why has business confidence and the willingness to take risk been so subdued? again, there is no single answer. but many of the businesses that we have talked with over the past couple of years have cited the uncertainty associated with the structural changes in the economy, including as a result of the high exchange rate. they have also cited the political environment, particularly the previously hung parliament. and they have cited an increased regulatory burden. while we cannot be sure, it is likely that each of these factors has affected the willingness of some firms to expand. a common message from business has been that they thought it was worth waiting a while to see how things worked out before they made decisions that were costly to reverse. in the parlance of economists, the “ option value ” of waiting has been high. beyond these australian - specific factors, i suspect there is also a deeper global factor at work – and that is the legacy of the financial crisis. recall that prior to the crisis, there was the great moderation. during that earlier period, the additional compensation that businesses required for taking a risk was quite small. confidence was high and volatility was low. the financial crisis changed all this. it reminded us all that bad outcomes were possible. and since then, the frequent news about the problems in the euro area and the possibility of political stalemate preventing the us government from meeting its financial obligations have only served to reinforce this idea. this scarring from the financial crisis is still with us and i suspect it will be with us for some time yet. it not only helps to explain why investment is weak outside the resources sector in australia, but also why investment is very low in many advanced economies despite generally healthy corporate balance sheets, very low interest rates and large - scale quantitative easing by central banks. while recently we have seen some

financial crisis has been marked by the rapid deleveraging of the non - bank financial sector. this deleveraging has been driven mainly by the collapse of securitization activity, pressure on dealers to reduce leverage and the spillover of these efforts on to other financial players such as hedge funds. this deleveraging process, in turn, has put intense pressure on the balance sheet capacity of the banking sector. not only can banks no longer securitize assets as before, but assets that they thought were off their books have come back on. although the deleveraging process is inevitable following periods when the financial system has become overextended, it does matter how this deleveraging process takes place. in the current crisis, the deleveraging process at times has been very violent and dangerous, with powerful reinforcing feedback loops intensifying the process. during these episodes, bystanders who did not engage in excess may be trampled and fail. this may exacerbate the tightening in financial conditions, intensifying the constraint on credit availability and the downward pressure on economic activity. for example, in march 2008, in the run - up to bear stearns ’ demise, the deleveraging process intensified. market volatility increased ; this caused lenders to increase the haircuts they assessed against collateral to secure their lending. the higher haircuts, in turn, squeezed highly leveraged investors who were forced to sell assets. this drove down asset prices and increased price volatility further, leading to still - higher haircuts. this intensified the deleveraging process, which led to more mark - to - market losses. the federal reserve ’ s facilities for banks and dealers have been designed, in part, to slow down the deleveraging process. the taf, the tslf and the pdcf have provided assurance to banks and dealers that they have a place where they can obtain funding for their less liquid collateral. as a result, they will not be forced to dump assets, further depressing market prices, increasing volatility and the upward pressure on haircuts. the deleveraging will still take place – and we have seen it – just not so quickly and violently that it would destabilize the entire financial system. the second major intent of the liquidity facilities has been for the fed to expand its balance sheet and, by doing so, offset some of shrinkage that has been occurring among non -