Saturday, May 2, 2009


Brad DeLong thinks:

... The problem is that among financiers everywhere, the tolerance for holding risk has collapsed. ...

Felix Salmon thinks:

Common sense says that you can’t start lending money to very risky borrowers without taking on lots of credit risk – but somehow, by the time the loans made their way through the system, almost nobody thought that they were taking on credit risk ...

I agree with Salmon, there never was any great tolerance for risk instead people were fooled into buying risk they didn't expect or want. So any plan for recovery which depends on credit markets returning to normal where normal means being able to represent risky loans as safe is wrongheaded. This may mean some businesses are no longer viable which is too bad but you can't build a sound economy based on lies.

No comments:

Post a Comment