10/28/09 Stockholm, Sweden – Today Terence Corcoran writes an opinion piece that takes to task the head central bankers from the US, Canada, and the UK for the nonsensical way in which they spin their decisions and explain their actions.
His focus is on moral hazard, which is how decision makers can become sloppy when they think the risk associated with dangerous behavior is reduced. Like when you go bungee jumping in Mexico because you already bought the extra “extreme” travel insurance anyway. Of course, Corcoran’s most concerned about the risks once again being taken in the financial system and the weak remnants of moral hazard to discourage them.
In pointing out how moral hazard has basically been replaced by talk, he chooses several “spell-binding reels of regulator speak,” and a particular highlight is from Ben Bernanke…
“For our part, the Federal Reserve is participating in a range of joint efforts to ensure that large, systemically critical financial institutions hold more and higher-quality capital, improve their risk-management practices, have more robust liquidity management, employ compensation structures that provide appropriate performance and risk-taking incentives, and deal fairly with consumers. On the supervisory front… we are augmenting our traditional microprudential, or firm-specific, methods of oversight with a more macroprudential, or system-wide, approach that should help us better anticipate and mitigate broader threats to financial stability.”
Now that certainly clears things up. It’s this kind of speechifying from central bankers who’ve ironically, “never seen a crisis they themselves had created,” that really gets his goat. For more insightful perspective from Corcoran, view the National Post article on central banks, moral hazard, and risk.
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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