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Credit Crisis: Damaging or Deserved?

Economist calls risk adjustment necessary, if hazardous

Posted Aug 19, 2007 9:17 PM CDT
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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.

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, to 16,047.46 points on the Tokyo Stock Exchange at the end of the...
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)
Trader Peter Raskin, right, pauses as he works on the floor of the New York Stock Exchange, Thursday morning, Aug. 16, 2007. Stocks fell sharply Thursday after a move by Countrywide Financial Corp. confirmed fears of widening problems with some mortgages and tighter access to credit. (AP Photo/Richard Drew)
Trader Peter Raskin, right, pauses as he works on the floor of the New York Stock Exchange, Thursday morning, Aug. 16, 2007. Stocks fell sharply Thursday after a move by Countrywide Financial Corp. confirmed...   (Associated Press)
The flags on the facade of the New York Stock Exchange are a backdrop for a Wall Street street sign, Thursday morning, Aug. 16, 2007. U.S. stocks appeared headed for another sharp retrenchment Thursday after a move by Countrywide Financial Corp. confirmed fears of widening problems with some mortgages...
The flags on the facade of the New York Stock Exchange are a backdrop for a Wall Street street sign, Thursday morning, Aug. 16, 2007. U.S. stocks appeared headed for another sharp retrenchment Thursday...   (Associated Press)
People react as they watch a screen on the facade of the Bombay Stock Exchange displaying the stock prices in Mumbai, India, Thursday, Aug. 16, 2007. Indian shares tumbled more than 4 percent in early trade Thursday, tracking sharp declines in markets worldwide. (AP Photo/Gautam Singh)
People react as they watch a screen on the facade of the Bombay Stock Exchange displaying the stock prices in Mumbai, India, Thursday, Aug. 16, 2007. Indian shares tumbled more than 4 percent in early...   (Associated Press)
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