Excessive risk allergy is much more dangerous for the society than the risk addiction of some bank trader gamblers

Risk-taking is not something easy to comprehend. A serious family man can make a million one quid bets on flipping a coin and nothing happens, though if he makes a single one million quid flipping a coin bet, and it goes wrong, all hell breaks loose. But, is the society better served by one million family men making a million one quid bets on flipping a coin, than by one who is capable of gambling one million quid on one single flip of a coin? Who is to tell? 

Sir, Lucy Kellaway in “The risk addicts” February 2, quotes a repentant trader gambler being in favor of zero tolerance with respect to recreational gambling in the City. I just don’t know if that is so. With a policy like that, would one not risk eliminating part of the biodiversity of a financial center that makes it thrive? I believe I would favor the imposition of more effective gambling limits instead. 

And by Lucy Kellaway placing “risk-taking” in the perspective of our banks, as many do these days, she is further feeding the false notion that the current bank crisis was the result of excessive risk taking. Let me say it loud and clear, much more dangerous for banks than overconfident addicted gambler traders, are bank regulators with a “superiority complex” who think themselves able to expulse risks from banks in a safe way. 

The Basel Committee bank regulators, thinking they were very smart, allowed the banks to hold much less capital to what was perceived as “absolutely safe” than for what was considered “risky”. And with that they gave the banks the incentives to bet excessively on what was, ex ante, perceived as “absolutely safe”, precisely what has caused all other bank crises in history. Their risk allergy did not cost billions, it cost us trillions, and that without including the opportunity costs for the society of its banks betting less and less on “The Risky”, like the small businesses and entrepreneurs. 

I firmly believe that the last thing a society can afford to do is to undervalue the worth of its willingness to take risks. The Western World was build upon risk-taking, and a lot of it plain crazy risk-taking… and which is why in our churches we can hear psalms begging “God make us daring!”