Editor’s blog: Tin hat time

There are more questions than answers at the moment. What was it about AIG that made it an imperative for USauthorities to save it, whereas they allowed Lehman to go to the wall? Was it the potential systemic damage to the market? The cure for moral hazard, of letting AIG go bust, would be worstthan the cost of going to its aid.

What on earth was an insurance company like AIG doing up to its neck in all these dodgy, arcane derivitives which all began when they hired a bunch ofoperators back in the 80s from Drexel Burnham Lambert? Remember them?Several wound up in prison.

More broadly, would your average investment banker know a moral hazard if one came up to him or her in the street? I doubt it. Traditionally, the only kind of hazard they understand is the threat to their bonus. In theory they should die by the sword they live by. But they don’t fail in isolation – they go down taking the rest of us poor souls with them. If we all wind up carrying their can then what’s the point of them not allowing a couple of years to go by, and the dust to settle, before they get up to their vile shenanigans all over again? The politicians and the regulators – and inevitably the lawyers –are going to be very busy in the next couple of years.

Anyway, I’ve been reading as much as I can and here are some links to some thoughtful and wise pieces:

First, surprisingly Max Hastings in the Guardian: ‘Many of these bankers are horrible people but we will still need them.’ Max is probably most hacked off at vulgar, arriviste investment bankers muscling in on the rural shooting scene but it’s a great read. And true.

Also take a look at the delightfully fruity Professor Willem Buiter of the LSE writing in the FT. Very awkward questions to answer here.

Then, for some light relief, here’s the novelist Will Self on investment bankers and schadenfreude.


In today’s bulletin:
HBOS to be rescued by Lloyds TSB?
Editor’s blog: Tin hat time
BAA: Anyone want to buy an airport?
Hirst a master of the art of making money
Porsche puts its foot down in VW bid