Risk......accept it,embrace it,respect it!

An interesting point was made the other day by an attendee at a LSE lecture on origins of the economic crisis and the medias complicity in it. This audience member stated that the crisis wasn't caused by financial "Risk" taking but rather by bankers seeking the avoidance of risk. He didn't get the chance to elaborate but I thought this a refreshing take on the situation.

The CDO's and other sophisticated financial mechanisms at the centre of the crisis were all about eliminating risk. The insurance that AIG provided seemed like a sure bet,they obviously figured they were effectively insuring the desert against floods. The banks who took policies out thought they would eliminate or at least manage risk.

But there was a "flood" and risk had not been eliminated. Instead like mountaineers all roped together on a perilous slope the risk was spread and when the unexpected flood did hit, and AIG didn't have enough to cover it in the pot, every mo' fo' was going over that cliff.

RISK and FAILURE and exposure to the MORAL CONSEQUENCES of both are essential to the working of a healthy MARKET. That bankers thought they had outwitted it is central to this banking collapse.

Gordon still doesn't get it!

Gordon Brown still appears in denial over his and his governments role in the current financial shamozzle with his refusal of any kind of an apology.It's as if he really believes this lack of complicity rather than it just being political posture,a delusion in scale not far off Tony Blair's one over Saddam being a threat.

His reported outburst to reporters last week on the flight to Washington illustrates this.When asked why he didn't do something to moderate the housing bubble he responded ‘House prices were high because of a lack of supply.’ I never bought this often repeated line before the crash and I don't buy it now.If there were any logic to it it would follow that now prices are now falling because of an OVER SUPPLY in housing stock.The fact is banks had cheap money they were desperate to loan it on insane property valuations.

When I entered the housing market in 1997 you were lucky if the banks valuation matched the property asking price.Fortunately mine did but I know other buyers at the time who had to scramble the shortfall in funds elsewhere.Often deals fell through due to this problem.As the housing boom progressed,and more money flowed into the financial system from the far east,banks seemed less fussy on these valuations as property prices spiraled ever upwards. THEIR UNQUESTIONING FINANCE IS WHAT INFLATED THE BUBBLE!

Gordon Brown could and should have acted to moderate this behaviour and he could have done so in a myriad of ways........capital gains tax,restrictions on loaned amounts etc.

I'm not holding my breath for the apology mind.DELUSION seems a key part of the "New Labour" model.I don't expect we'll ever see Blair apologise, or even admit error, over the Iraq invasion either.