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Robert Samuelson thinks the Great Recession has eroded America’s appetite for financial risk. Matt Yglesias has the right response:

The allergy toward risk-taking isn’t a consequence of the recession, it’s something that existed even beforehand. After the dot-com bubble and the Enron/Worldcom accounting scandals, people were looking for safe investments. And the selling part of housing (for ordinary households) and mortgage-backed securities (for big shots) was that this was supposed to be a basically safe non-speculative investment with a somewhat higher yield than a savings account or a treasury bond. That turned out to be an illusion, but it was a risk-averse pursuit from the beginning.

The entire decade of the aughts was marked by an almost fanatical aversion to risk. All those synthetic CDOs and credit default swaps, all the super senior tranches that banks smugly kept on their books, the whole panoply of measurement tools like VaR and the Gaussian copula — all of them were designed to convince investors that risk had been engineered out of the system. That’s why they were so popular. Not because Bush-era investors were bold capitalists with confidence in the future, but just the opposite: it was because Bush-era investors were desperately looking for high-yield investments that were essentially fully hedged and risk free. It was a fool’s paradise, all right, but it was a fool’s paradise based thoroughly and explicitly on avoiding risk.

Now, of course, it’s worse. Investors are still risk averse, but they’re also operating in a recessionary environment in which good investment opportunities are genuinely hard to find and financial engineering no longer seems like a panacea. What’s changed isn’t the fundamental timidity of America’s modern millionaire class, only the fact that it’s now a lot more obvious.

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