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Dispersing risk ought to make the system more secure.
This was supposed to make the financial system more secure by dispersing risk more widely.But look what is happening now.
They go in for complicated financial instruments that promise "riskless risk" by dispersing risk into a million small pieces and casting them into the ether.
The intricacy itself appealed to the Morgan bankers, as did the magical idea of dispersing risk to investors far and wide so that lenders could lend without hesitation.
Credit derivatives have probably improved the stability of the global economy by dispersing risk, but it is no longer clear where that risk is being held.
For every debtor, there is a creditor, so a loss to one side must be offset by a gain to another; net global debt is always zero.Similarly, for financial regulators, the rise of complex structured products like collateralised debt obligations (CDOs) was merely a sign that the system was getting better at parcelling up and dispersing risk to those best able to bear it.
Similar(52)
Adair Turner, the chairman of Britain's Financial Services Authority, noted at a conference sponsored by the International Monetary Fund last week that "the dominant conventional wisdom" was that "this increase was increasing financial stability because it was dispersing risks efficiently into the balance sheets of those best placed to manage that risk".
Securitisation the bundling of mortgages into securities that were sold to investors diversified and dispersed risk.
Are these devices a clever way to disperse risk, making the financial system safer, as their enthusiasts claim?
The easy availability of money and new financial products intended to disperse risk led to a boom in mortgage lending and private equity acquisitions.
To further disperse risk, banks are also participating in so-called club deals where several banks lend on a single construction loan.
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