Showing posts with label risk mangement. Show all posts
Showing posts with label risk mangement. Show all posts

Wednesday, July 27, 2011

Greenspan reverts to form

Alan Greenspan is as hard to follow as ever. Seemingly, too, as convinced of the transcendent wisdom of the market as ever.  Today, in a Financial Times op-ed, he argues that governments in wealthy countries overreach in trying to shield citizens from a variety of major risks. Along the way, he seems to equate strict earthquake-proofing standards for buildings, high capital ratios for banks, and a propensity to bail out banks that get in trouble as different manifestations of the same government malady. 

Those equations are hedged a bit. I don't think that Greenspan means to suggest that Japan's earthquake-proofing standards are as ill-advised as bank capital ratios that he regards as excessive or the bailout of Bear Stearns. But that's how I read it the first time:
The buffer may encompass expensive building materials whose earthquake flexibility is needed for only a minute or two every century, or an extensive stock of vaccines for a feared epidemic that may never occur. Any excess bank equity capital also would constitute a buffer that is not otherwise available to finance productivity-enhancing capital investment...