Tuesday 18 December 2007

Last Resort

I don't know about you, but I can't help feeling slightly disappointed to see the ECB and Bank of England step in to rescue us all from our own stupidity. Same with the new guarantees for Northern Rock.

Obviously, it's good news for the markets, for clients, for those vanishing bonuses - I wouldn't have it any other way.

But one feels rather as a boy might on a school orienteering trip if, on getting lost, he was quickly recovered by a teacher who had been covertly trailing him against just such an eventuality. Yes, it is lovely to be warm and drinking cocoa again, but it does make one feel very small. Having problems? Here's 170 billion euros to sort it out.

Not very good for our collective backbone, that kind of fairy godmother intercession, is it?

Now lets all cross our fingers and ask Father Christmas to make those billions of cheap pounds and euros count.

2 comments:

neurotik said...

I fully agree. This rewarding of facing a black swan is very effective in strengthening the incentives to hunt for extra returns connected to products that only suffer from black swan risks.

But it seems that the importance of the public's trust in the system outweighs the potential issues of moral hazard. It's obviously good for the people in the business that would otherwise have been sacked or left bonusless, but it must be off someone's pocket.

I hope it's not me.

Anonymous said...

It does seem strange to decouple the whole consequences to actions relationship, but the benefits surely outweigh the risks in this potentially recession-provoking case.