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October 16, 2008

Comments

William

For me, I'm afraid, it rings false. While I've never had any interest in gambling with money, I've bungee'd, skydived (solo not tandem), and climbed, and lived and worked in six countries.

So risk taking may be domain-specific.

BenP

My guess is £million "bonuses" trumps genetics every time...

passer by

The is no doubt the zillions in bonuses gets bodies thru the door to give it a try, but my guess is the ones with the right genes are the ones who can really do the job. Serotonin is known being able to change your concept of reality, test show after sex your perceptions of colours change, Serotonin also changes your perceptions of risk, and makes you more impulsive, and aggressive.

To do this type of job you have to be in it for the ride or the kick, for the mortals amongst us losing zillions in order make zillions is a very emotional undertaking, you need an off switch or have something readily available that suppress emotion or hides it like dopamine and serotonin.

My guess is that risk managers are rational and well informed, but they like the traders had a very big hard on.

Diversity

If confirmed, this is reassuring. It is very hard to envisage an economy composed of individual agents growing contiuously without an inbuilt variation in individual risk acceptance/aversion.

Bob B

Genetic determinism is a comforing escape route.

As for root causes of the crisis in Britain, how much did the consumer debt mountain have to do with the size of the house-price bubble in Britain?

"Britain's debt mountain has nearly tripled over the past decade and now exceeds the total size of the economy.

"Consumer debt swelled to some £1.345 trillion by the end of the second quarter [2007], some £15bn more than annual gross domestic product, accountants Grant Thornton said."
http://www.thisismoney.co.uk/credit-and-loans/article.html?in_article_id=423642&in_page_id=9

Look at this chart in The Economist [3 April 2008], based on IMF data, to see how the size of the house-price bubble in Britain, from 1997 through 2007, compared with the bubbles in other affluent economies:
http://www.economist.com/finance/displaystory.cfm?story_id=10974135

Why was no one in government watching?

Yvette Cooper, now chief secretary in HM Treasury, was the minister responsible for housing from 2005 through 2008. She is married to Ed Balls, now the Schools Secretary who was Gordon Brown's chief economic adviser in a previous incarnation. Yvette Cooper is reputedly clever, having studied at Oxford, the Kennedy School of Government at Harvard and the LSE.

The big question is to what extent are CEOs and their remuneration packages being promoted to the role of scapegoats in order to divert attention from the policy failings of the government.

passer by

I dont think anyone is saying its an escape route? I think the question is how do we get people to exercise self control? one way would be to make corporate crime much more serious and not send them to open jail for a few months.

Bob B

There's much to be said for applying greater sanctions to competition policy violations - especially cartel practices (jail in America) - but the challenging current topical issues are about what factors led to the present instability in the financial system and what to do to reduce the likelihood of recurrence - to put initially all that in a very neutral way stripped of question-begging presumptions.

The evident impact of financial market instability on the real economy pretty well demolishes the pre-Keynesian notion of the classical dichotomy:
http://en.wikipedia.org/wiki/Classical_dichotomy

The credibility of the analytical tools of Keynesian economics has been vindicated: The market can stay irrational longer than you can stay solvent.

There seems to be wide agreement on the principle of reforming the regulatory framework for financial markets but it will likely be difficult to impossible to gain consensus on the detail. The FT interview of Lord Turner, the new chairman of the FSA, surely must mention most of the outstanding options for regulatory reform - the transcript is 10 pages long! Right now, not many are charging around championing: Free Markets.
http://www.ft.com/cms/s/0/d76d0250-9c1f-11dd-a42e-000077b07658.html?nclick_check=1

There's also the pressing political issue of what compassionate social help is to be extended to innocent and unintended victims of the present hiatus - spare me, please, the fashionable cliche about "hardworking families".

House construction is now at the lowest rate for half a century and the number of house sales is at another record low.

Well done: Yvette Cooper, the minister responsible for housing 2005-08.

We can leave the genetic engineering issues till later.

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