Risky Banks

Behold the iPad in All Its Glory.

Image via Wikipedia

The US government has been through an exercise of major financial reform, at least on paper, and now the UK is doing the same thing. Perhaps, after a few more trials, this will result in something worthwhile … but I doubt it. Banks are businesses and, like all businesses, they try to maximize profits. Maximizing profits involves taking risks and we’ve seen the results of banks taking “too many” risks. But we tend to focus on the negative results and not on the positive results. Most of us have no clue regarding the balance of benefits – we only see the problems.

The risk/reward problem is easier to see in businesses that are easier to understand. For example, Apple took a huge risk in creating the iPad, but the risk paid off handsomely, not only for Apple, but for the millions of iPad users. The risk/reward problem exists for all businesses, including banking. I don’t know enough about banking to understand the benefits and the risks, much less understand how to evaluate any trade-off. I’m not sure that the politicians, regulators, and reformers understand much more than I do.

All I know is this – simply identifying risks and saying something is “too risky” is very shallow thinking. Tell me about the risks, but also tell me about the benefits.

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