Guarantees Will Create Risk, Investment Lists Will Concentrate It

by JoeTheEconomist October 12, 2011 10:25 AM
Investment without risk is like Christianity without Hell.”

~Warren Buffett

Washington's Idea Is Bad

We oppose guarantees because they encourage unwarranted risk taking.  Guarantees enable workers to invest on unnatural terms.  If the investment wins, I win.  If investment loses, the taxpayer loses.  This will create very lazy investors, who are solely interested in chasing assets that generate a maximum return.  This is the exact mind set which enabled our economy to position itself on a financial apocalypse in 2008.

Washington's Solution Is Worse

Washington expresses its concern by seeking to create oversight boards.  The idea is that an investment board will select safe investments.  Unfortunately, these policy wonks clearly miss the point.  Risk isn’t just in the viability of the business.  Risk is expressed in the price of ANY asset.  If Washington creates a narrow list of approved investment, risk-tolerant money will chase safe investments until they are risky.  When you subsidize risk, you will create risk. 

In short, Washington’s solution is to create risk in our most stable companies.



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