PS. So, Houston, we sure have got ourselves another serious problem.
PS. Might someone at long last be waking up?
I warned many about the coming crisis, long before it happened, on many occasions and in many places, even at the World Bank. They did not want to listen and that´s ok, it usually happens, but what is not ok, is that they still do not seem to want to hear it. “We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.” (Plato: 427 BC – 347 BC)
It used to be that the safest investments, the absolutely not-risky, that paid low interests, were reserved for what was known as widows and orphans, those unable to shoulder risk. And banks and other investors took care of the “risky”
Not any longer! With capital requirements for banks that are much lower when banks hold assets deemed as “absolutely not-risky” than when they hold assets deemed as risky, the banks have been induced to earn their return on equity among those perceived as “absolutely not risky”.
You tell me, what return could there be left for a widow and orphan from holding an AAA rated security when banks can hold those same securities against basically no equity of their own at all?
Capice? If not…. firstname.lastname@example.org
To put risks in perspective, I would begin any risk managing session by asking the participants:
What are the risks you most consider you cannot afford not to take?
ON THIS BANK CRISIS, I am certainly NOT a Monday Morning Quarterback
The less the perceived risk of default is, and the higher the leverage allowed, the greater the systemic risk.
Q. "If Kurowski is right, why are his arguments so ignored? A. If I had argued that the regulators were 5 to 10 degrees wrong, I would be recognized, but since I am arguing they are 150 to 180 degrees wrong, I must be ignored.