Why is real fear of credit risks not as transitory as fear of terrorism?

Sir, Tim Harford writes about when recalling a flight taken after “watching the Twin Towers of the World Trade Center collapse on television”, he was “in a state of mortal fear”, but how that fear seems so foolish to him now. And that’s because “each year an American citizen has a one in 9,000 chance of dying in a motor vehicle accident, and… Even in 2001, the chance of an American being killed by a terrorist was less than one in 100,000”, “Nothing to fear but fear itself?” November 14.

Harford then argues: “Perhaps the true impact of terrorism is psychological… The terrorists’ best hope lies in provoking and overreaction. Too often they succeed”

Absolutely. And the question then is: What terrorism impacted our current bank regulators into believing so much that those who are perceived a risky credits cause more damage to our banks, than those who perceived as safe can turn out to be very risky?

The worst part of that belief is that seemingly it is not as transitory as Harford argues fear to more normal terrorism to be. Today, years after the explosion of what was considered safe by regulators, like AAA rated securities and loans to Greece, we still have much higher capital requirements for banks against what is perceived as risky than against what is perceived as safe.

@PerKurowski ©