Credit Crisis: Damaging or Deserved?

Economist calls risk adjustment necessary, if hazardous
Japanese businessmen walk past the electronic board of a securities firm displaying falls of share prices in Tokyo Thursday, Aug. 16, 2007. The benchmark Nikkei 225 index lost 428.15 points, or 2.60 percent,...   (Associated Press)
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(Newser) – The Economist takes the long view on the turmoil that has engulfed the financial markets, noting that investors have long wondered whether the "the securitisation of just about every form of debt into a tradable asset" would, in the end, spread risk efficiently or lead to cataclysmic failure. The immediate threat, it argues, is to the banking system, where lack of confidence in lending can cripple otherwise solvent institutions.

"The retreat to a new level of risk was never going to be orderly,” the Economist notes, but  the current suffering is necessary because bankers and investors need to be be scared straight. “Markets learn from their mistakes,” the magazine says. It’s crucial that fallout be assessed before the next wave crashes.