Rapid responses
Risky business
[Re: Financial regulation is worsening Europe’s demographic time bomb, Thursday]
Bruno Pfister’s argument that financial regulation makes things worse is one that too often gets forgotten in the current discourse of “too big to fail” orthodoxy. This discourse has now effectively become “businesses must not take any risk they cannot afford” in the day to day application of financial regulation. The insurance industry shows how wrong this approach is. Insurance is about the transfer of risk across individuals and legal entities. As the aftermath of Hurricane Sandy shows, this extends to transferring risk to the taxpayer. No one is arguing that the Sandy victims should stand alone. So why is the notion of risk sharing in extreme circumstances anathema to financial regulation? Pfister is right that as individuals become older they may want to take less risk to preserve what they have built up. But society needs more risk-taking, more people willing to try new things. The ability to move risk between economic players is the biggest innovation that we have had from the last 200 years of financial services development. But the current approach to regulation is like outlawing cars because they cause over 1.2m deaths per year world-wide. Imagine what that would do to our economy?
Vincent Baritsch
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