Re: [OPE] Trichet on risk

Jurriaan,   Trichet is right. If we want to understand what particular thing that triggered the financial crisis off is, we have to understand which those mechanisms are, i.e. an extensive marketfor unreliable loans and a risk saving devises called “credit default swaps”, and the role of risk taking in market economies.   It is a little bit extravagant to speak of "units of risk" but this rationalization is logically sound.   And yes, “If banks had charged more money and bigger insurance premiums for risky loans, the crisis would have been avoided”. The crisis is a consequence of risk criteria proper of gambling brought to the official market of loans, made possible by Bush government.   Michael W. is right when he says that there is gambling in every market transaction, but he is wrong when he tacitly missed the fact that government regulation tries to establish different “risk thresholds”, and to establish the bearable threshold in the banking system.   Regards,A. Agafonow ________________________________ De: Jurriaan Bendien <adsl675281@tiscali.nl> Para: OPE@lists.csuchico.edu Enviado: jueves, 13 de noviembre, 2008 20:36:22 Asunto: [OPE] Trichet on risk Jean-Claude Trichet , "Macroeconomic policy is essential to stability" (FT November 12 2008): "The root cause of the crisis was a widespread undervaluation of risk. This included an underpricing of the unit of risk and an underassessment of the quantity of risk that financial operators took upon themselves."   So what is the conclusion of this? If banks had charged more money and bigger insurance premiums for risky loans, the crisis would have been avoided, because there would have been more money in the kitty? I seriously wonder what a "unit of risk" is. Is that when your wife throws a bit of crockery at you because she's angry, and you don't know if you can step out of the way? How many "risk units" would be equal to one "util"?   Jurriaan

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Received on Thu Nov 13 15:18:58 2008