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The US financial system needs "four bazookas" fired at the same time to restore its health, Pimco Co-Chairman Mohamed El-Erian said.
The head of the world's biggest bond fund manager, playing off a "bazooka" analogy from Treasury Secretary Henry Paulson, said on CNBC that launching the simultaneous policy initiatives is key to the future of large financial institutions:
- Re-liquefying the system. "That means putting in funds like the central banks are doing—and cutting interest rates.
- Injecting capital "in some key financial institutions."
- Stopping the massive deleveraging, or unwinding of debt, in the system by buying "top-quality, highly rated securities."
- Shifting regulatory policy from a pro-cyclical to anti-cyclical stance, or focusing on areas that are inversely correlated to economic performance.
"If you don't see the four bazookas firing at the same time it's going to be too little, too late on the policy front," he said.
El-Erian, who called for a "regime change in policy," said the move overnight by central banks to inject a $180 billion expansion of temporary foreign currency swap arrangements helps but is not enough to stop the financial crisis.
"There are many ways to do it. They are not elegant, but we're in a crisis mode," he said. "And when you are in a crisis mode you first stabilize the situation and then you deal with collateral damage."
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