Trading in the "Fever of Boom"
Letter to the Editor
Alex J. Pollock | Financial Times
July 11, 2009
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Sir, Many thanks for John Kay's excellent column "Our banks are beyond the control of mere mortals" (July 8). He is so right that it is not a matter of stupidity or incompetence. As Walter Bagehot said, it is "the ablest and cleverest the most" who in the fever of the boom "trade far above their means".

I believe the explanation is at bottom simple: leverage. No one, no matter how able or clever, can run an organisation taking serious risks that is also leveraged up to 20 or 30 or more times equity, without crashing from time to time.

There is just too little margin for the inevitable errors and unpleasant surprises in a dangerous and uncertain world.

Alex J. Pollock is a resident fellow at AEI.

About the Author

 

Alex J.
Pollock
  • Alex Pollock joined AEI in 2004 after thirty-five years in banking. He was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is a director of the CME Group, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and the chairman of the board of the Great Books Foundation.

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  • Phone: 2028627190
    Email: apollock@aei.org
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