Sunday, 19 December 2010

Are Canadians are suckers for moral hazard?

As Walter Bagehot pointed out in “Lombard Street” (published in 1873), booms and recessions are a regular cycle. That is, irrational exuberance goes too far, which leads to a crash, followed by a slow recovery. Memories are short, so after a few years of recovery, no one thinks the inevitable new bout of exuberance can possibly be irrational, so the cycle starts again.

To say that memories are short in Canada looks like being an understatement: they haven’t learned the lessons of the recession WE ARE STILL IN! The Bank of Canada seems to be buying junk mortgages like there’s no tomorrow. See Mish.

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