RE: [OPE] Credit

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For this reason also, as I have argued on OPE-L before in a criticism of
Trichet, it is in reality impossible to know that credit has been
"over-extended"... until markets crash. The "unknowables" in this sense
help explain the great financial panic in 2008, which caused a "freeze" in
international credit provision. The ideology of "inadequate risk pricing"
is merely a snowjob which inverts the real causation - the insurance of
capital against risks of loss of capital and earnings became so lucrative,
that it blew a hole in the credit system, causing more insecurity and risk
for everybody. Precisely because of the unknowables, the expansion of
credit was justified with only an "ideology", a dogma that the markets
would allocate capital efficiently.
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In a sense this is true, but the likelihood of crisis rises as a function
of the ratio of credit to reserve money.

The University of Glasgow, charity number SC004401
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Received on Fri Jan 29 10:05:12 2010