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.
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