The scary cognitive dissonance of the Basel Committee
Sir Whitney Tilson in “Lessons to be learnt from losses” February 10 writes about some harmless “cognitive dissonance” in a group “who believed the earth was going to be destroyed by a flood on December 21, 1954” and then extrapolates from that in order to explain some recent investment behaviour.
But there is also quite dangerous “cognitive dissonance”. For instance the way in which the Basel Committee is now responding to its absolute failure in trying to avoid a crisis by creating disincentives for bank to assume credit risks as measured by others, is now slowly evolving into the belief that they could and should measure and fight systemic risk. That is indeed a really scary “cognitive dissonance”.
But there is also quite dangerous “cognitive dissonance”. For instance the way in which the Basel Committee is now responding to its absolute failure in trying to avoid a crisis by creating disincentives for bank to assume credit risks as measured by others, is now slowly evolving into the belief that they could and should measure and fight systemic risk. That is indeed a really scary “cognitive dissonance”.
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