Tuesday, January 13, 2009

Capitalist gains; socialist losses

Nice article on why our natural aversion to risk could not overcome the heads-you-win,-tails-we-lose incentives set up by the US government.
What would help ameliorate future financial crises? The government should not be in the business of hiding real risks through political imperatives, or of insulating corporations from the risks that they have freely taken. Doing so confounds the normal risk signals that keep the market in balance. For risk aversion to keep markets working, people and corporations have to be allowed to assess real risks and to fail if they take inappropriate risks. Only the people who produce wealth can properly assess how best to risk it in future investments. The Warren Buffetts of the world can do that. The Ben Bernankes cannot.

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