Moral hazard

(Bloombeerg) - The ECB loaned banks a record 489 billion euros ($636 billion) for three years on Dec. 21 to avert a credit crunch from the sovereign debt crisis. The central bank said earlier this week that the turmoil has taken on systemic proportions not seen since the 2008 collapse of Lehman Brothers Holdings Inc.

It seems to me that as long as the banking system knows that governements and central banks are ready to help them, banks will continue to avoid risk management.

Unless we let banks fail, financial crises will be prolongued and we all have to pay.

We can defend ourselves by being wise investors and recognizing the power of the printing press of the central banks. Financial markets strive on liquidity.

The next really great opportunity? Shorting bonds. When? I do not know, but I am working on it. If what happened to yields in Italy, Greece, .... is any lesson, interest rates will have to rise by several mmultiples in the US.

More details in my The Peter Dag Portfolio , in Dag's Exclusive market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year by Timer Digest

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